When it comes to borrowing money, there are generally two types of loans: secured and unsecured. Secured loans require collateral, while unsecured loans do not. Collateral is an asset that a borrower pledges to a lender to secure a loan. If the borrower defaults on the loan, the lender can seize the collateral to recoup their losses. Here are some common types of loans that require collateral.

Mortgages

A mortgage is a type of loan that is used to purchase a home. Because homes are typically the most expensive purchase people make in their lifetime, mortgages are usually secured loans. The collateral for a mortgage is the property itself. If the borrower defaults on the loan, the lender can foreclose on the property to recover their losses. Mortgages typically have a lower interest rate than unsecured loans because they are less risky for lenders.

Auto loans

Auto loans are another type of secured loan. The collateral for an auto loan is the vehicle itself. If the borrower defaults on the loan, the lender can repossess the car to recover their losses. Like mortgages, auto loans typically have a lower interest rate than unsecured loans because they are less risky for lenders.

Secured personal loans

Personal loans are typically unsecured, meaning they do not require collateral. However, some lenders may offer secured personal loans for borrowers with poor credit. The collateral for a secured personal loan can be anything of value, such as a car, jewelry, or a savings account. If the borrower defaults on the loan, the lender can seize the collateral to recoup their losses.

Home equity loans

A home equity loan is a type of loan that allows homeowners to borrow against the equity they have built up in their home. The collateral for a home equity loan is the home itself. If the borrower defaults on the loan, the lender can foreclose on the property to recover their losses. Home equity loans typically have a lower interest rate than unsecured loans because they are less risky for lenders.

Secured credit cards

Secured credit cards are a type of credit card that requires a deposit to secure the credit line. The deposit serves as collateral for the credit card. If the borrower defaults on the credit card, the lender can seize the deposit to recoup their losses. Secured credit cards are often used by people with poor credit who are trying to rebuild their credit score.

Business loans

Business loans can be secured or unsecured, depending on the lender and the borrower’s creditworthiness. If a borrower has poor credit or is starting a new business, they may be required to provide collateral to secure the loan. The collateral for a business loan can be anything of value, such as equipment, inventory, or real estate. If the borrower defaults on the loan, the lender can seize the collateral to recoup their losses.

Pawnshop loans

Pawnshop loans are a type of secured loan that is often used by people with poor credit who need quick cash. The borrower brings an item of value, such as jewelry or a musical instrument, to the pawnshop. The pawnshop lends the borrower money based on the value of the item, but holds onto the item as collateral. If the borrower fails to repay the loan, the pawnshop can sell the item to recoup their losses.

Loans that require collateral are generally secured loans. The collateral can be anything of value, such as a home, car, or piece of jewelry. Secured loans typically have a lower interest rate than unsecured loans because they are less risky for lenders. If a borrower defaults on a secured loan, the lender can seize the collateral to recoup their losses. It is important to carefully consider the terms of a secured loan before borrowing, as defaulting on the loan can result in the loss of valuable assets.