A secured loan requires the borrower to provide an asset to stand as collateral for the loan. The asset is in most cases property or a vehicle. If the borrower defaults on his/her payments - they don't pay on the agreed upon time - the lender is entitled to take the asset that was put as collateral and sell it to redeem the value of the loan.
When lenders talk about an unsecured loan, they refer to a loan that needs no asset to stand as collateral. This means that you are able to receive a loan without owning an asset. In the event of a default on your monthly instalment, the lender cannot take your house or vehicle to retrieve the outstanding debt amount. The recourse they can act upon is going through legal procedures in order to regain the outstanding money. These lenders base their decision primarily on your credit score and income. Due to the fact that unsecured loans carry more risk for the lender, their lending terms are less favourable than secured loans.
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