Secured loans are loans which require the borrower to pledge an asset or security to avail the loan. Home loans and car loans are the most common examples of secured loans where the borrower will be required to pledge the vehicle or house to be purchased as collateral, which then become secured debt. In case the borrower defaults on their loan repayment, the lender has full right to take possession of the collateral/secured debt. A secured loan is one of the best and assured sources of obtaining a high volume of funds.
Unsecured loans are a type of loan that are given without the applicant having to provide any collateral to the bank. These loans are given on the basis of an applicant’s credit score and income. Since there is no collateral, the risk factor is high for the bank. Therefore, the banks charge a higher rate of interest on these loans as compared to secured loans.
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