Loans are a common way to borrow money, but not all loans are created equal. One of the main differences between loans is whether they are secured or unsecured. This distinction can have a big impact on the interest rate, the approval process, and the risk involved for both the borrower and the lender.

Secured loans, like mortgages and auto loans, are backed by collateral—something of value that the lender can claim if the borrower defaults. This makes secured loans less risky for lenders, often resulting in lower interest rates. Unsecured loans, like credit cards or personal loans, do not require collateral and are riskier for lenders, which usually results in higher interest rates.

Understanding the difference between these two types of loans can help you make smarter borrowing decisions. So, do you know what sets secured and unsecured loans apart? Let’s see if you can distinguish between the two!