What is the difference between Secure and unsecure loans?

A secure loan involves collateral, which is an object that is taken away if the borrower cannot repay the money (aka repossession). Secure loans provide a backup which means the banks will charge a lower interest rate.

Examples of secure loans are home mortgages and car loans. In the case of a person not able to make a mortgage payment, the bank will foreclose on the house.

In contrast, an unsecure loan is the exact opposite of a secure loan. It's where there isn't any collateral to back things up. An example of this type of loan would be a credit card. Think of a credit card as a mini loan that you pay back month to month if you were to carry a balance. In the event of failing to make these payments, the credit card company usually doesn't have anything to repossess. Though there are some exceptions of course.

Because there isn't any backing with these types of loans, the interest rate is usually higher compared to secure loans.

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