What is typically required when taking out a secured loan?

When taking out a secured loan, the primary requirement is to provide collateral to back the loan. This collateral is an asset, such as a car, home, or savings account, that the lender can claim if the borrower defaults on the loan. The presence of collateral reduces the risk to the lender because it gives them a means to recover their losses should repayment not occur as agreed. This is in contrast to an unsecured loan, where no collateral is needed and lenders take on more risk.

In secured loans, lenders are generally willing to offer more favorable terms, such as lower interest rates, compared to unsecured loans precisely because their financial exposure is mitigated by the collateral.