What Is the Difference Between a Secured & Unsecured Loan?

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The difference between a secured and unsecured loan is that a secured loan is backed up by some sort of collateral. Learn why a bank is taking a larger risk with an unsecured loan with help from a financial specialist in this free video on loans and money management.

Part of the Video Series: Loan Information
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Video Transcript

Hi, this is Matt McKillen with Innovative Financial Group. The question posed to me today is: What is the difference between a secured and an unsecured loan? It's very simple. On a secured loan, when you take a loan from some financial institution, you're giving some type of collateral for that loan. It's secured by something. To give you an example, if you take a car loan, that car loan is secured by the vehicle, which means if you don't pay your car payments, they can repossess the vehicle and pay the car off. Another example of a secured loan could be maybe a boat loan. It could be a loan secured by equipment in your business. Usually, there's some type of collateral. An unsecured loan is basically the type of loan that if you walked into your bank or your credit union and said, "You know what? I've got great credit. I just want to borrow two or three or 4,000 dollars." That is what's called a signature or note loan and is unsecured. On that type of a loan, the bank is taking a much higher risk, but usually, they're making that type of a loan to somebody that either has a really good credit history or some type of history with the bank. So again, secured means there's collateral; unsecured means it's on a signature. My name is Matt McKillen. I'm with Innovative Financial Group.

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