What is a type of loan that requires collateral from the borrower?

A secured loan is defined by the necessity of collateral, which means that the borrower must provide an asset to back the loan amount. This collateral can be in the form of property, a vehicle, or any other valuable asset that can be reclaimed by the lender if the borrower fails to repay the loan according to the agreed terms. The presence of collateral reduces the lender's risk, as they have a claim on the asset should the borrower default, often enabling borrowers to access larger amounts or lower interest rates compared to unsecured loans.

In contrast, unsecured loans, student loans, and personal loans typically do not require any form of collateral. Unsecured loans are based on the creditworthiness of the borrower alone, while student loans are specifically designed for educational expenses and do not require collateral, and personal loans can also be unsecured. Understanding these distinctions is crucial in navigating different types of loans and their associated implications for borrowers.