In the loan system, borrowers initially receive an amount of money from the lender, which they pay back, usually but not always in regular installments, to the lender. This service is generally provided at a cost, which is referred to as "interest on the debt." There are two kinds of loans: unsecured and secured. Unsecured loans are not secured against the assets of the borrower. There is no need for the borrower to use his/her property as collateral for the lender; the lender has no rights to the assets of the borrower. The rates on this type of loan are higher, and the monthly payment is also higher.

The second type is a secured loan. Secured loans are probably more suitable for people who do not want pay a higher rate of interest or do not want to repay in higher installments. Instead of the higher rates or higher repayment option, the borrower has to give his assets or property as the collateral. This means that borrower uses his home or some of his property or assets as a guarantee to the lending company. If the borrower fails to repay, the lender can claim the secured property. This security enables the lender to offer lower rates of interest. The only drawback to this type of borrowing is risking loss of the assets in case of default on repayment.

For secured loans, many lenders offer higher levels of credit to home owners. This loan allows borrowers to borrow as much as hundreds of thousands of dollars. Even in the case of an adverse credit history, there are chances of a borrower being approved for the loan. As compared to unsecured loans, secured loans are more easily offered.

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