Borrowers have a wealth of options to get the cash they need, but all loans and lines of credit ultimately fall into one of two categories: secured vs. unsecured.
Secured loans tend to have better terms that can save you money in exchange for your willingness to accept extra risk.
Unsecured loans, on the other hand, see the lender accept more of the risk in the transaction — and charge you appropriately.
You won’t always get to choose between them, but when you do, the decision comes down to accessibility, cost and responsibility.
The difference between secured and unsecured loans
A loan is considered “secured” when you put up some form of collateral: an asset that the lender can seize and sell if you fail to make your payments.
That collateral might be your house, your car or your savings — something precious it would hurt to lose.
The lien — or legal claim — placed on your asset gives the lender confidence that it can get its money back if you become unable or unwilling to pay your debts.