Loans had been defined as an arrangement between to individuals (or groups) from which a lender gives property or money to the borrower.  The latter likewise agrees to repay the money or to return the property at a given period of time, usually with an interest.

Whenever an individual enters into an agreement for a loan or wants to secure a loan, the lender may o may not require the individual to pledge a collateral.

If the lender requires for a collateral, this is called a secured loan.  Collateral is defined as anything that has a value. This may include a house, a herd of sheep, a car, business assets, or anything that has a worth.

Usually, lenders require collaterals valued at a much higher price than that of the actual loan since its value could diminish over time.  An example may be a house that has been used as a collateral.  Its value may be lower in time if it
caught fire, had been flooded or simply damaged by unforeseen accidents.

Other lenders may not require for a collateral, this then is called an unsecured loan.

The following are the advantages of a secured loan:

These kinds of loans usually have lower interest rates since it is backed by a collateral.  The lender would feel more secure with the deal thus over a lower interest rate.
 
With the presence of a collateral, lenders may still want to lend money to borrowers who may even not have a very good credit standing since they could rely on the security of the collateral.

These though also have its own disadvantages:

The borrower may not fully enjoy the use of the collateral while the loan is still active.  For example, if a boat is used as a collateral, he or she may not be allowed to resell a part or the whole of it or make renovations to it since it could affect its value.
 
Even if an individual filed for bankruptcy, said collateral may still be seized from him or her.
 
Unsecured loans also have its own advantages and disadvantages.  Its advantages are as follows:

Applying for unsecured loans are relatively easier than that of a secured loan.  It usually requires less paperwork or documentation, requiring usually only the signature of the borrower and a given schedule for the payment scheme.
 
There usually are not restrictions on how the borrower may use the funds.
 
The lender has not right over the purchased goods with the loaned money or fund.
 
On the contrary, a loan may be both secured and unsecured.  If an individual enters into a secured loan agreement, say $10,000, and uses his automobile as a collateral (valued at $6,000), then his loan is secured only up to $6,000.  The
remaining $4,000 is deemed as unsecured.

For individuals who have bad credit standings, lenders usually offer the secured type.  This for their own assurance that the borrower will be forced to repay, and if not, the lender have the security of the collateral to fall back to.

Though some may still offer the unsecured form of loan to those with bad credit standings, these are usually backed with higher interest rates that they deem would be sufficient to cover the amount loaned even before its full payment.