Secured Loans are loans that are usually made by banks and credit unions to buy large ticket items like businesses, houses and cars. The loan is specifically tied to the purchase or funding of a tangible asset that the bank can then take possession of if the debtor doesn’t pay off the loan. The loan is made “secure” because the bank has this added security of being able to repose or take possession of the securing asset. When a secured loan is obtained, generally the money can only be used for the securing item, for example a car loan can obviously only be used to buy a car. Some secured loans allow a little bit more flexibility with the money, for example, a second mortgage secured by a home may be spent more freely, but this is the exception rather than the rule. Secured loans are traditional long term loans with reasonable interest rates. Generally to get a secured loan you will need to have a job and a good credit rating.

Unsecured loans come in a variety of forms; they can be made by traditional lenders or other non-traditional lenders such as payday loan companies or check cashing stores. Unsecured loans may also be called signature loan, payday loans or cash advances. Unsecured loans from traditional lenders are long term loans with reasonable interest rates. Lenders consider this a riskier loan than a secured loan because if you don’t pay back the loan, the lender has nothing to repossess or take back to cover their losses. Because the bank is assuming a higher risk, they may charge a higher interest rate than with a secured loan and the bank may also require a higher credit score in order to qualify.

Payday loans are generally short term loans for small amounts of money done through payday loan companies or check cashing businesses, banks don’t do this type of loan. An unsecured loan is easy to get and you don’t even need to have good credit, if fact credit checks aren’t even done. The down side to these loans is that the interest rates can be extremely high, interest rates can be well in excess of 300% APR.