What type of loan typically requires collateral?

A secured loan typically requires collateral, which is a valuable asset that the borrower pledges to the lender to secure the loan. This collateral serves as a guarantee for the lender; if the borrower defaults on the loan, the lender has the right to take possession of the collateral to recover the outstanding debt. Common examples of secured loans include mortgages and auto loans, where the property or vehicle acts as collateral.

In contrast, unsecured personal loans, cash advances, and credit card loans do not require collateral. Unsecured loans rely on the borrower's creditworthiness and are generally more expensive due to the higher risk to the lender. Cash advances are typically just short-term loans against future paychecks and don't involve collateral. Similarly, credit cards are a form of revolving credit that does not require any asset to be pledged. Thus, the distinguishing factor for secured loans is their requirement for collateral, making them a safer option for lenders.