When you think about the borrowing options you have, you will come across two types of loans, secured loans, and unsecured loans. You need to understand these two types of loans, and the one you opt for will depend on your needs.
A secured loan, as the name suggests, requires a security or collateral that you provide to the lender. For instance, a bank may give you a mortgage loan, but as collateral will pledge your existing property and mark a lien on the property documents. Therefore the secured loans are for more significant borrowing. You may qualify for the financing when you have something to provide to the bank as security.
These are loans where you do not provide any security to the lender, and thus, the lender is at a higher risk in case you default on the repayments. Personal loans and short term loans are examples of unsecured lending. So how does a lender mitigate the risk with unsecured loans? Banks, for instance, will provide such borrowing only if you have a good credit score.