Does A Secured Loan Require Collateral?
Yes, a secured loan requires collateral. The collateral is the asset that acts as security for the loan. So if you fail to meet your obligations and default on the loan, the lender can repossess the item to recover their losses.
For personal loans, the most common form of collateral is a vehicle, such as a car or motorcycle. The lender will need to check that the vehicle is registered in your name before it can be used as collateral for the loan. For home loans, the property being purchased typically serves as the collateral. Other loan types, like pawnbroker loans, can use valuables like jewellery or electronics, which are usually handed over at the time of the loan. If the loan isn’t repaid, these items are kept by the lender.
If a loan does not require collateral, it is known as an unsecured loan. Because secured loans are less risky for lenders, they often come with lower interest rates and higher borrowing limits than unsecured loans. Secured loans also tend to have simpler eligibility criteria.
Learn more: Secured vs Unsecured Loans — What’s the Difference & Which is Better?
