What’s the difference between unsecured loan and secured loan?

ByWealth Diagram

There two type of loans a person can take. One type is an unsecured loan and the other type is a secured loan. The difference between unsecured loan and secured loan is. An unsecured loan does not require borrowers to offer collateral. A secured loan require borrowers to offer collateral.

Collateral is when you pledged something as a security for repayment of a loan. If you were to default the load then you forfeited that something.

For example.

If you were to have $10,000 on a brokerage account. You can put the $10,000 as collateral and borrow $2,000 against it. The brokerage will happily lend you the $2000 dollars.

Why? because in the event that you default, they can take their $2,000 money back.

Secured loan

A secured loan require borrowers to offer collateral. Some of the things that can be use as collateral are:

  • Bonds
  • Stocks
  • Investments on a brokerage account
  • Cash in saving account
  • Cash in Money account
  • Cash in a certificate of deposit
  • Future paycheck
  • Home
  • Car
  • Boat
  • Jewelry
  • Precious metals
  • Antiques
  • Fine art
  • Collectibles
  • Insurance policy

Unsecured loan

Unsecured loan does not require the borrowers to offer collateral. Some of the things that are consider unsecured are:

  • Student loans
  • Credit cards
  • Medical debt
  • Personal loans
  • Wedding loans
  • Vacation loans

Now you know that An unsecured loan does not require borrowers to offer collateral. And a secured loan require borrowers to offer collateral.

That’s it.

Now, start and adjust as you go.

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