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Consumer Financial
Protection Bureau
To nd this and other activities, go to:
consumernance.gov/teach-activities
Summer 2022
BUILDING BLOCKS TEACHER GUIDE
Differentiating between secured
and unsecured loans
Students explore characteristics of secured or unsecured
types of credit by playing a sorting game.
KEY INFORMATION
Building block:
Financial knowledge and
decision-making skills
Grade level: High school (9–12)
Age range: 13–19
Topic: Borrow (Getting loans, Managing
credit)
School subject: CTE (Career and
technical education)
Teaching strategy: Cooperative learning,
Gamication
Bloom’s Taxonomy level: Understand,
Apply
Activity duration: 45–60 minutes
National Standards for Personal
Financial Education, 2021
Managing credit: 12-2, 12-10
These standards are cumulative, and topics are not
repeated in each grade level. This activity may include
information students need to understand before
exploring this topic in more detail.
Learning goals
Big idea
Borrowers may receive different types of loans
based on their credit history.
Essential questions
§ How might a person’s credit habits
and decisions inuence their ability to
borrow money?
§ What types of loans help people pay for
large purchases or expenses?
Objectives
§ Understand the characteristics of secured
and unsecured loans in order to make
informed borrowing decisions
§ Identify items that could be purchased using
a secured loan versus an unsecured loan
NOTE
Please remember to consider your students’
accommodations and special needs to ensure
that all students are able to participate in a
meaningful way.
Summer 2022
BUILDING BLOCKS TEACHER GUIDE
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Differentiating between secured
and unsecured loans
What students will do
§ Work collaboratively to sort game cards with loan characteristics into two piles:
secured and unsecured loans.
§ Work collaboratively to sort game cards with items to show which ones can
likely be purchased with secured loans and which can likely be purchased with
unsecured loans.
Preparing for this activity
□ While it’s not necessary, completing the “Reading about credit scores” activity
rst may make this one more meaningful.
□ Print a single-sided copy of the “Characteristics of secured and unsecured
loans” game cards in this guide on one color of paper for each student group.
□ Print a single-sided copy of the “Items you can purchase with secured or
unsecured loans” game cards in this guide on a second color of paper for
each student group.
□ Cut all sheets into individual cards. Make sure each group has each set of
game cards.
°
If you prefer, print the cards on sticker paper and afx them to playing
cards so you can reuse them in the future.
What you’ll need
THIS TEACHER GUIDE
§ Differentiating between secured and unsecured loans (guide)
cfpb_building_block_activities_differentiating-secured-unsecured-loans_guide.pdf
STUDENT MATERIALS
§ “Characteristics of secured and unsecured loans” game cards and “Items you can
purchase with secured or unsecured loans” game cards (in this guide)
Summer 2022
BUILDING BLOCKS TEACHER GUIDE
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Differentiating between secured
and unsecured loans
Exploring key nancial concepts
Credit offers seem to be everywhere, but not everyone who applies
for a loan will be approved. Creditors often evaluate a person’s
credit history to determine whether they will lend them money.
For people who are just starting to build their credit or who have
lower credit scores, it may be easier to get a secured loan than an
unsecured loan. Secured loans require the borrower to provide
collateral (something of value like a car, a boat, a home, etc.) that
the bank or lending institution can take to get their money back if
the borrower can’t pay back the loan.
Lenders may offer people with higher credit scores unsecured loans. These
loans require no collateral, so the bank or lending institution is trusting that these
borrowers will pay them back. This trust is based on their credit history—what
borrowers have done in the past that gives them a good credit rating. Because
unsecured loans put lenders at higher risk, they may have a higher interest rate
than secured loans. If that trust does not result in repayment, the lender can report
late or missing payments to the credit reporting companies, can engage in debt
collection, and might sue the borrower.
TIP
Because nancial products,
terms, and laws change,
students should be encouraged
to always look for the most
up-to-date information.
Teaching this activity
Whole-class introduction
§ Ask students if they or someone they know has ever lent someone money.
§ Ask students what kinds of things people consider before lending someone
money.
°
Examples may include whether and when the borrower can pay the money
back or how much the lender would be willing to lend.
§ Read the “Exploring key nancial concepts” section to explain secured and
unsecured loans.
§ Ask students to take a moment to consider the similarities and differences
between secured and unsecured loans.
§ Be sure students have a basic context of loans:
°
Loss of collateral isn’t the only consequence of nonpayment of a secured
loan. Nonpayment can result in such things as negative information on your
credit report, a lower credit score, debt collection, or being sued.
Summer 2022
BUILDING BLOCKS TEACHER GUIDE
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Differentiating between secured
and unsecured loans
°
When many factors are equal (e.g., income, job history), secured credit may
be easier to get than unsecured.
°
People seeking a loan must remember that they’re a customer buying a
product and that they shouldn’t allow lenders to intimidate them or make
them feel as if the lenders are doing them a favor by granting credit.
§ Be sure students understand key vocabulary:
°
Interest: A fee charged by a lender, and paid by a
borrower, for the use of money. A bank or credit union
may also pay you interest if you deposit money in certain
types of accounts.
°
Lender: An organization or person that lends money with
the expectation that it will be repaid, generally with interest.
°
Loan: Money that needs to be repaid by the borrower, generally with interest.
°
Secured loans: Loans in which your property (things you own) is used as
collateral; if you cannot pay back the loan, the lender takes your collateral to
get their money back. The lender can also engage in debt collection, can le
negative information on your credit report, and might sue you.
°
Unsecured loan: A loan (such as most types of credit cards) that does not use
property as collateral. Lenders consider these loans to be more risky than
secured loans, so they may charge a higher rate of interest for them. If the
loan is not paid back as agreed, the lender can also start debt collection, le
negative information on your credit report, and might sue you.
TIP
Visit CFPB’s nancial
education glossary at
consumernance.gov/
nancial-education-glossary/.
Group work
Working with the “Characteristics” cards
§ Divide students into groups of three or four and give the “Characteristics” cards
to each group.
§ Instruct the groups to review the cards and sort them into three piles:
°
Characteristics that apply to secured loans
°
Characteristics that apply to unsecured loans
°
Characteristics that apply to both types of loans
Summer 2022
BUILDING BLOCKS TEACHER GUIDE
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Differentiating between secured
and unsecured loans
§ When all groups have nished sorting, review their answers by calling on
each group to share a characteristic and whether it represents a secured or
unsecured loan or both.
§ As students answer, invite them to share their reasoning.
§ As needed, help students understand where characteristics t.
Working with the “Items” cards
§ Distribute the “Items” cards to each group and ask students to sort them
into two piles:
°
Items that would likely be paid for using secured loans
°
Items that would likely be paid for using unsecured loans
§ When all groups have nished sorting, call on different groups to share
their responses.
§ As needed, help them understand where items t.
°
Some items could fall into either category, so have students discuss which
characteristics they used to make their choice.
Wrap-up
If time allows, ask students to complete an exit ticket responding to the following
prompt: “How would you describe the difference between a secured and an
unsecured loan?”
Suggested next steps
Consider searching for other CFPB activities that address the topic of borrowing,
including getting loans and managing credit. Suggested activities include
“Qualifying for loans” and “Calculating loan payments”.
You also may consider having students get an estimated credit score at the FICO
Score Estimator
1
at https://www.myco.com/co-credit-score-estimator/estimator.
1 The CFPB does not endorse this third party or guarantee the accuracy of this third-party information.
Summer 2022
BUILDING BLOCKS TEACHER GUIDE
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Differentiating between secured
and unsecured loans
Measuring student learning
Students’ answers during the game and during discussion can give you a sense
of their understanding.
These answer guides provide possible answers for the game. Keep in mind
that students’ answers may vary. The important thing is for students to have
reasonable justication for their answers.
Answer guide for “Characteristics of secured and unsecured loans” cards
Connected to collateral
(secured loan)
Lender can take possession
of your collateral
(secured loan)
Might be easier for
borrowers to get
(secured loan)
Less risky to lenders
(secured loan)
If you have no credit history
or are rebuilding your credit,
you’re more likely to be
approved for this type of loan
(secured loan)
Usually have lower
interest rates
(secured loan)
Usually have higher
borrowing limits
(secured loan)
Lender holds title or an
interest in the property until
the loan is paid in full
(secured loan)
Usually offers longer
repayment time period
(secured loan)
Your property may be sold
to pay off the loan
(secured loan)
You could use personal
property such as a bank
deposit or a car to back
this loan
(secured loan)
Lender not protected by
any collateral
(unsecured loan)
If you default on the loan,
the lender can’t automatically
take your property
(unsecured loan)
You can set up automatic
payments to help make sure
your payments go in on time
(both)
You obtain this loan based
on your income and
credit record
(unsecured loan)
Summer 2022
BUILDING BLOCKS TEACHER GUIDE
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Differentiating between secured
and unsecured loans
Make your payments on time
to protect your credit report
(both)
May require a down payment
(secured loan)
Riskier for lenders
(unsecured loan)
Lenders may use stricter
lending criteria
(unsecured loan)
Face debt collection or get
sued if you don’t repay
(both)
Usually has lower
borrowing limits
(unsecured loan)
Answer guide for “Items you can purchase with secured or unsecured loans” cards
Car
(secured loan)
Boat
(secured loan)
Recreational vehicle
(secured loan)
Home
(secured loan)
Home equity line of credit
(secured loan)
Home improvement loan
(secured loan)
Credit card
(unsecured loan)
Student loan
(unsecured loan)
Personal loan
(unsecured loan)
Jewelry
(secured loan)
Vacation
(unsecured loan)
Business equipment
(secured loan)
Unexpected expenses
(unsecured loan)
Automobile repairs
(unsecured loan)
Wedding expenses
(unsecured loan)
Summer 2022
BUILDING BLOCKS TEACHER GUIDE
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Differentiating between secured
and unsecured loans
“Characteristics of secured
and unsecured loans” game cards
Print these cards one-sided on colored paper (try to use a different color than what you use
for the “Items you can purchase with secured or unsecured loans” game cards).
Connected to collateral
Le
nder can take possession
of your collateral
May be easier for borrowers
to get
Less risky to lenders
If you have no credit history
or are rebuilding your credit,
you’re more likely to be
approved for this type of loan
Usually have lower
interest rates
Usually have higher
borrowing limits
Lender holds title or an
interest in the property until
the loan is paid in full
Usually offers longer
repayment time period
Your property may be sold
to pay off the loan
You could use personal
property such as a bank
deposit or a car to back
this loan
Lender is not protected by
any collateral
If you default on the loan,
the lender can’t automatically
take your property
You can set up automatic
payments to help make sure
your payments go in on time
You obtain this loan
based on your income and
credit record
Make your payments on time
to protect your credit report
May require a down payment Riskier for lenders
Lenders may use stricter
lending criteria
Face debt collection or get
sued if you don’t repay
Usually has lower
borrowing limits
Summer 2022
BUILDING BLOCKS TEACHER GUIDE
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Differentiating between secured
and unsecured loans
“Items you can purchase with secured
or unsecured loans” game cards
Print these cards one-sided on colored paper (try to use a different color than what you
use for the “Characteristics of secured and unsecured loans” game cards).
Car Boat R
ecreational vehicle
Home Home equity line of credit Home improvement loan
Credit card Student loan Personal loan
Jewelry Vacation Business equipment
Unexpected expenses Automobile repairs Wedding expenses
