what is secured and unsecured loans?

Secured and Unsecured Loans

Loans can either be secured or unsecured. A loan is secured when a borrower is asked to pledge assets to the lender as security or collateral for the loan. If the value of the collateral falls below a certain proportion of the loan amount, the lender may ask you to top up the collateral (by pledging more assets). If you cannot repay your loan, the lender can sell off these assets to recover the money owed. If the money from the sale is not enough to recover what you owe, you have to make up the amount (shortfall) still outstanding. For unsecured loans, the borrower does not provide any assets to the lender as security for the loan. Interest rates for such loans tend to be higher. Examples of secured and unsecured loans The table below shows the different types of secured and unsecured loans:

Term Revolving Secured
  • Mortgage/home loan
  • Bridging loan
  • Construction loan
  • Term Loan
  • Car loan
  • Secured overdraft
  • Secured credit card
Unsecured
  • Education loan
  • Renovation loan
  • Personal loans
  • Overdraft
  • Credit card
  • Charge card
  • Personal line of credit

Most unsecured loans charge fixed interest rates whether they are term or revolving loans, unless promotional interest rates apply. In the case of secured loans, a consumer will have a choice of fixed or floating interest rate options.

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