What is the difference between a secured and unsecured loan?

A secured loan is a type of borrowing where the loan is backed by an asset, such as a car or a house. This asset serves as collateral for the lender. If the borrower fails to make the required payments, the lender has the right to take possession of the asset to recover the outstanding amount. Because of this collateral, secured loans often come with lower interest rates, making them more appealing for larger amounts of money over longer terms. On the other hand, an unsecured loan does not require any asset as collateral. Instead, the lender evaluates the borrower's creditworthiness, income, and overall financial situation to determine approval and interest rates. This type of loan typically has higher interest rates due to the increased risk for the lender. If a borrower defaults on an unsecured loan, the lender cannot seize any property but may pursue legal action or send the account to collections. Ultimately, the choice between a secured and unsecured loan depends on the borrowers' needs and their comfort level with risking an asset. For more detailed information on loan options, exploring the current web page may provide further insights.