There are two common types of loans: secured and unsecured. Secured are those loans that are backed up by some type of valuable collateral. Collateral is required for many reasons. If the borrower defaults on the loan the collateral item or items can be taken by the lender and sold at any price to try to meet the amount that is owed to the lender. The lender does not have to sell the collateral at any fair market value. They can discount the item as far as they want in order to cover the balance due. The borrower takes on the risk of losing their collateral.

Unsecured loans are have no collateral for a back up in the event of non-payment. These types of loans usually are for smaller amounts. Persons with good credit can get an unsecured loan from a bank, credit union or some other financial institution. These are called signature loans. The only backup is the borrower's signature on a promise to repay the loan. In the case of a default on the loan the lender has nothing to claim or sell to pay off the balance due. The lender takes on all the risk.

Unsecured loans are also available to persons with no, poor or bad credit. This type of loan is not going to be available from a regular financial institution. Unsecured loans are available throughout the payday loan industry. A cash advance loan is an unsecured loan. It is a very short term loan running from about a week to a month or however long it is within those times until the borrower's next payday. These loans carry higher interest than bank loans.

Interest at cash advance lenders starts around 360% and can go well over 1000% for the term. There is no collateral required. The only backup is either a check written at a payday loan store or an ACH withdrawal form that is filled out during an online lender application. Unsecured loans are good because there is nothing to lose if a person cannot repay.