Secured loan

Secured borrowing is usually the cheaper of the two forms, because the lender is exposed to less loss rather than because the borrower has earned better terms. The pledge also tends to buy a larger sum and a longer term, which is why mortgages run for decades and unsecured credit lines do not.

Mortgages, home equity loans and lines of credit, auto loans, title loans, pawn loans and secured credit cards are all secured. A pledge only cuts the rate against what the same lender would charge the same borrower without one, which is why title loans and pawn loans are secured and still cost far more than an unsecured personal loan to someone with a strong credit file. The collateral is named in the agreement and the lender registers a claim against it, called a lien in the United States, so the asset cannot be sold with clear title until the debt is settled. If payments stop, the remedy is foreclosure on property or repossession of goods, and the process and notice periods there are set by state law.

The mistake is reading the lower rate as a straight improvement. Moving card balances into a home equity loan cuts the rate, and it also converts debt the house was never behind into debt the house is behind. The interest went down and the consequence of a missed payment went up. Run both structures through the loan payment calculator and then compare what each one puts at risk, because the payment alone will not show you that half.