Which statement distinguishes secured loans from unsecured loans?

The statement that secured loans require collateral, while unsecured loans do not, effectively captures the fundamental difference between these two types of loans. Secured loans are backed by an asset or collateral, such as a house or a car, which the lender can claim if the borrower fails to repay the loan. This collateral reduces the risk for the lender, as they have a tangible asset to recover their losses.

In contrast, unsecured loans do not require any collateral, which means lenders are relying solely on the borrower’s creditworthiness and ability to repay. Because there is no collateral to back these loans, they tend to be riskier for lenders, which can result in higher interest rates compared to secured loans.

Thus, understanding that the presence or absence of collateral is a key distinguishing factor helps clarify the characteristics and risks associated with each type of loan, making it clear why the correct choice emphasizes the requirement of collateral with secured loans.