What distinguishes unsecured credit cards from secured loans?

Unsecured credit cards differ from secured loans primarily in that they are not backed by collateral. This means that when you apply for an unsecured credit card, the lender does not require any asset, such as a car or a house, to secure the credit. Instead, the credit approval is based on your creditworthiness and ability to repay the borrowed amount. If you fail to make payments, the lender does not have a specific property they can claim to recover their losses, which increases the risk to them compared to secured loans.

Secured loans, on the other hand, require collateral; if you default, the lender can seize the asset used for collateral. This fundamental difference is what characterizes unsecured credit cards, allowing consumers access to credit without risking property. This distinction is crucial for understanding credit types and the associated risks and responsibilities.