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What is the difference between secured loan and unsecured loan

What is the difference between secured loan and unsecured loan

What is the difference between secured loan and unsecured loan 150 150 Jiang Hong Wilkin Business Law

There are two kinds of loans: secured loans and unsecured loans. In a secured loan, the borrower pledges its assets as collateral/security for the loan. If the borrower cannot pay back the loan, the lender can take over the assets. A bank mortgage is a typical secured loan. The real property is the pledged asset. If the borrower does not pay back the loan, the bank can sell the real property to get the money back. There is no secured asset for an unsecured loan. If the borrower cannot pay back the loan, the lender can force the borrower into bankruptcy. Even in a bankruptcy proceeding, the secured assets cannot be touched. Only a secured party is entitled to deal with the secured assets. In addition, the money owed to the government (such as HST, source deduction on employees’ salary, etc.) has to be paid first. The unsecured creditors can be paid if there are still remaining assets. Therefore, the unsecured loan is more risky than a secured loan, and the interest rate of an unsecured loan is typically higher than a secured loan.

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