A secured loan, however, is connected to a particular piece of collateral that is usually something valuable like a vehicle or a house. Some of the most common types of secured loans are mortgages and car title loans.
An unsecured loan is not backed up by any type of collateral but rather based on the credit score or decided trustworthiness of the borrower. Since the loan is not directly connected to any collateral, if you default on the loan, the lender can’t automatically take any of your property (though it is still possible). Without any asset tied to the loan, a lender would consider this a greater risk. Therefore, interest rates on these types of loans are considerably higher. Because of the process to get these loans are greater, funding is not as speedy as people usually need. The most common types of unsecured loans: