It is very important to understand the difference between secured and unsecured loans.  Secured loans are considerably cheaper than unsecured loans, but there are reasons for this.

When a loan has “security”, it means that if the loan defaults then the lender can take whatever asset the borrower has offered up for credit.  The asset that is usually offered is the residential home, although it could be another home, a car, or just about any asset that has some value.  This is how mortgages work.

The security that is offered against the loan will mean that the loan is safer than if the loan did not have any security.  Risk is the biggest cost to most lenders, who will charge partly to offset the risk that the loan will not be repaid. 

This means that people who are prepared to offer an asset as security against a loan will have more money that they will be prepared to advance.  A lender who is advancing an unsecured loan is essentially advancing a loan that they will only be able to reclaim if the person can repay; they are essentially secured against the borrower’s reputation and continued earning ability.  If there is a valuable asset being offered as security, then the loan can go up to a large proportion of the value of the asset.

There will also be a considerably lower interest rate as the risk is considerably reduced.  The secured loans have considerably reduced the risk that the loan will not be paid back, and this is reflected in the fact that the interest rates are considerably lower on secured loans.

Secured loans are mostly on homes, but they can be on different assets.  Chattel mortgages are loans that are loaned against movable assets that are not tied to a piece of land.  These assets are mostly new or nearly new cars, and this is how many car loans are financed. 

It must be stressed that although secured loans have the advantage that they can be advanced more money and get a lower interest rate, they are in return for increasing the chance of losing a house or other asset.  This is one of the reasons why consolidation loans, which tend to be secured, are considerably cheaper than credit cards, which are unsecured.  This increased risk should always be borne in mind when considering this.