What is the difference between a secured and unsecured loan?
Secured and unsecured loans are two types of ways people borrow money. The major difference is that secured loans use collateral.FunctionA secured loan has a specific piece of property used as collateral, which can be seized if the borrower fails to repay the loan. An unsecured loan has no collateral. Instead, the borrower’s credit score plays a bigger role.SizeIn general, secured loans can be used to borrow a much larger sum than with unsecured loans because of the decreased risk the lender takes on by issuing the loan.Interest RatesThe interest rates on secured loans will be lower than unsecured loans because the lender can seize the property used as collateral, so the lender has a lower risk.ExamplesSecured loans include mortgages, car loans and home equity loans. Unsecured loans include personal loans, credit cards and most student loans.ConsiderationsSome people consider using a secured loan, such as a home equity loan, to consolidate their unsecured debt at a lower interest rate.
