What is the difference between “secured” and “unsecured” loans?
As implied, a secured loan is secured by a tangible piece of equity that will guarantee re-payment to the lender, such as the equity in your home. An unsecured loan is not secured by such equity and therefore harder to qualify for. The only basis for the lenders decision is your past re-payment history. Because the lender is taking a higher risk, these types of loans typically cost a bit more in fees and come with slightly higher interest rates.
With an unsecured loan you do not put up any security on a loan- such as your house- as you would if you took on a secured loan. This means there is no danger of losing your home, however, if you don’t keep up repayments at the contractual rate you will be taken to court. Additionally, interest rates are usually higher on an unsecured loan so it will normally cost you more.
