Being in either a secured or unsecured position can have a different meaning, depending on what a person is referring to. This can imply either, secured or unsecured debts, loans, credits, or creditors. These financial situations depend largely on the context in which it’s used.
Secured vs Unsecured Loans
The first definition we can look at is taking up secured or unsecured loans.
- Secured Loans: When taking out a large loan, some lenders tend to use a tangible asset, either a house or car as collateral to secure the loan. This helps to reduce the risk of the loan, and on the lender. However, if a person is to default on the loan, the bank can repo the collateral assets that were used to secure the loan.
- Unsecured Loans: OIn the contrary, an unsecured loan is when no physical or tangible assets are used to secure the loan. Instead, a person takes out a loan without using collateral to secure the loan. It lowers the risk for the person taking out the loan, as the bank can not repossess any of their assets.
Secured vs Unsecured Debt
Each bank or financial advisor will treat secured and unsecured debt differently.
- Secured Debt: This refers to a person taking out a loan, but using some form of collateral or assets to secure the loan. The bank may also sometimes have a lien on the person and the asset. In case a person is not able to repay the loan in full or defaults on their payments, then the bank can repossess the collateral.
- Unsecured Debt: Any regular consumer debt not related to any form of collateral or assets used in the loan process.
Secured vs Unsecured Credit
- Secured Credit: This is the same as secured loans and debts, where the lender or bank offers you credit against any form of collateral offered by a person to secure the credit.
- Unsecured Credit: This is the opposite, where credit is given to a borrower without any collateral to secure the credit or loan. It has bigger risks for the lender, but less for the borrower.