Question

In two paragraphs, compare secured and unsecured types of credit. Secured sources of credit include title loans and personal loans. Unsecured sources of credit include peer-to-peer loans and payday loans. Research one type of credit from each category (secured and unsecured) to compare the sources of credit. In the first paragraph, compare secured and unsecured credit and briefly describe the two types of loans you researched. In the second paragraph, compare these two types of loans. Your comparison should discuss elements such as risks and rates. Be sure to support your comparison with evidence.

Answer 1

Secure credit is credit that is given with a connection to a piece of collateral, such as a car or a home. This means that, if you were to default on your payments, the lender would be legally entitled to taking possession of the collateral. An example of this is a car loan, which is a loan that is used to purchase a car. On the other hand, an unsecured loan is one that is not protected by any collateral. This means that the lender cannot immediately take your property of you default on the loan. An example of this is a credit card.

In the case of a secured car loan, interests tend to be lower because of the security that the collateral (the car) provides. Moreover, these loans tend to provide interest rates that are fixed, which means that it is easier to plan for this expense and avoid falling behind on payments. The risk for the lender is less with a secured loan, as he is able to take the property and resell it if the borrower is unable to repay the loan. On the other hand, credit card are riskier for the lender (the bank) as they are unsecured, and this means that they are unable to immediately take any property from the borrower who did not repay. Because of this high risk, interest rates also tend to be high.