When you are applying for a bank loan, you have the choice between a secured loan and an unsecured loan - or more likely, your financial lending institution will select one or the other for you.

A secured loan is when the borrower puts up collateral - if the borrower defaults on the loan, the bank has the power to seize the collateral. Real estate is the most common collateral, although stocks and other assets can be used.

An unsecured loan is a loan in which no collateral is pledged by the borrower. These loans are generally only given to businesses and persons that the banks deem as unlikely to default.