Secured loans require collateral, which is an asset that the lender can take if the borrower defaults. Common examples include home loans (mortgages) or car loans, where the home or car serves as collateral. Secured loans generally have lower interest rates because they are less risky for lenders.

Unsecured loans, such as personal loans or credit card debt, do not require collateral. Because they are riskier for lenders, they often come with higher interest rates. Understanding the difference is crucial when deciding which type of loan best fits your financial situation.