- There are two main types of loans: secured loans and unsecured loans. Secured loans are backed---or guaranteed---by a piece of collateral. Unsecured loans are not backed or guaranteed by anything but your word.
- Car loans, mortgages and home equity lines of credit are all types of secured loans. Personal loans are a type of unsecured loan, as you receive the money without giving the bank anything to "hold."
- In many cases, such as the case of a car loan or mortgage, the collateral is the thing that you bought with the loan. You get to keep it and use it while you're paying for it, but if you default on the loan, the lender has the right to repossess it.
- Secured loans can be easier to get than unsecured loans for that very reason---if you do default on the loan, at least the lender will get something back, so it won't be a total loss. If you default on an unsecured loan, the lender runs a real risk of losing everything that you owe.
- Just because secured loans are easier to get, doesn't mean anyone can get them. The lender is still assuming some risk, therefore the lender will still be choosy about whom it does and does not grant a secured loan.