A secured loan is one where you offer some kind of collateral against the loan. The agreement is that if you default on the loan, the lender has the right (but not the obligation) to take possession of the asset you have pledged. In most cases, this asset would be what the lender has financed. For example, when you take a home loan, you offer the home as collateral. There may also be events where you may need to present additional collateral over the asset that is being financed. This happens, for example, when the lender is financing close to 100% of an asset that is prone to quick reduction in market value. In such cases, the lender may insist on your putting up another asset to provide a reasonable margin of protection in case of default. Unsecured loans are those where such collateral arrangements do not exist. These loans are granted based on your credit standing, ability to repay and other factors. In situations where there's a choice available to the customer to take either a secured or an unsecured loan, the secured may be offered at a somewhat lower rate. That is, assuming every other factor remains equal. This is because of the lower risk involved to the lender.
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