What Is the Difference Between a Secured Loan and an Unsecured Loan?

A secured loan is a loan that requires collateral. The collateral ensures that if you default on the loan, the bank or lender will seize the collateral as payment of the loan. Secured loans are mostly applied for by individuals with a lower credit rating. Moreover, secured loans give the borrower the chance to ask for a higher loan amount with payment schedules set over a shorter period. Conversely, an unsecured loan requires no collateral. The terms and conditions of the loan are dependent upon your income and credit rating. The interest rates may be higher and the repayment plan may be longer. Obviously, banks prefer secured loans over unsecured loans given the state of the economy and the problems associated with the sub-prime mortgage crisis.