Personal loans are a form of unsecured debt. Examples of secured debts include mortgages and auto loans. With a mortgage, the loan is “secured” by your home, meaning that if you don’t make your loan payments, the lender can foreclose on your home and sell it to recoup its money.
With personal loans, the balance isn’t secured by any particular asset, even if you use the loan proceeds to buy something with substantial resale value. This is one of the reasons why personal loans tend to have higher interest rates than comparable mortgages—the fact that they’re unsecured creates a somewhat higher risk for the lender.
Are credit cards or personal loans worse for credit?
