Which statement distinguishes secured loans from unsecured loans?

• A. Secured loans are backed by collateral (mortgage, auto loan).
• B. Unsecured loans require collateral.
• C. Secured loans have no interest charges.
• D. Unsecured loans are only for students.

Answer: (A)

Collateral defines secured loans. A loan is secured when the lender has a claim on an asset—such as a home in a mortgage or a car in an auto loan—if the borrower fails to repay. That collateral lowers the lender's risk, typically leading to lower interest rates and easier approval compared with unsecured loans. Unsecured loans, by contrast, are not tied to an asset and rely on the borrower's credit and promise to repay; they usually come with higher interest rates to compensate for the higher risk. The statements about unsecured loans requiring collateral, secured loans having no interest, or unsecured loans being only for students don’t fit the reality of how these loan types work.