Updated: Aug 17
An unsecured loan is a loan that does not require any collateral. Because of this, unsecured loans typically have higher interest rates than secured loans. However, unsecured loans can be easier to obtain if you have limited assets or want maximum flexibility for how you’ll use your loan. Unsecured loans can be used for just about anything whereas most secured loans have limited use-cases.
A secured loan, on the other hand, uses an asset as collateral. That asset can be anything from your house for a home equity line of credit (also known as a HELOC), to vintage baseball cards held as collateral for a pawn shop loan. The catch is if the borrower defaults on the secured loan, they lose the asset being held in collateral.