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What is the difference between a secured and an unsecured loan?

A secured loan is a type of loan that is secured by collateral, such as a car or a house. This means that if you fail to repay the loan, the lender can take possession of the collateral to recoup their losses.

An unsecured loan, on the other hand, is not secured by collateral. Instead, the lender relies on the borrower’s creditworthiness to determine the loan’s risk level and interest rate. Unsecured loans typically have higher interest rates than secured loans because the lender assumes more risk by not having collateral to fall back on.