The best description of the difference between secured and unsecured loans is that a secured loan requires collateral, meaning the borrower pledges an asset (such as a car, savings account, or home equity) that the lender can seize if the loan is not repaid, while an unsecured loan does not require any collateral. Because secured loans involve less risk for lenders, they often come with lower interest rates, higher loan amounts, and potentially easier qualification requirements. Unsecured loans, on the other hand, typically have higher interest rates and depend more on the borrower’s creditworthiness. In case of non-payment, with a secured loan, the lender can take the collateral; with an unsecured loan, the lender cannot seize assets but can pursue collections and credit score damage.
