What is the difference between secured and unsecured loans?

The primary difference between secured and unsecured loans is the presence of collateral. Secured loans are loans that are backed by collateral, which is typically an asset that the borrower pledges to the lender to secure the loan. This collateral serves as a form of security for the lender, as it can be seized or sold in the event that the borrower fails to repay the loan. Examples of secured loans include mortgage loans, auto loans, and secured personal loans.

Unsecured loans, on the other hand, are not backed by collateral. These loans are typically granted based on the borrower's creditworthiness and ability to repay the loan, rather than on the value of any assets that the borrower may own. Because there is no collateral to secure the loan, unsecured loans often come with higher interest rates and stricter repayment terms. Examples of unsecured loans include personal loans, credit card loans, and student loans.