Is a Payday Loan Secured or Unsecured?

Are you short on cash? Does payday feel too far away? Or maybe you need extra money to cover a big expense or past-due bill. Whatever the case, applying for a Payday Loan can be a good option.

Payday Loans provide small amounts of money based on your income. You’ll receive the loan as a lump sum, which you then repay in full when you receive your next paycheck.

Although Payday Loans are a popular option for accessing extra cash fast, you may be wondering if they’re secured or unsecured.

We’ll explain what a Payday Loan is, whether it's a type of secured or unsecured debt, and why it matters.

Secured loan definition

A secured loan is one that requires you to offer something as collateral in exchange for the funds. Collateral often used to “secure” these loans include vehicle titles, property deeds, and even cash.

Secured loans like title loans and mortgages can be considered high-risk for the borrower because if you can't repay the loan, your lender keeps your collateral to recoup their losses. This could mean losing your home or vehicle if you default.

With a title loan, for example, you hand over the title to your car or truck in exchange for a personal loan. You can then use the loan for whatever you need and continue to drive your vehicle even though you no longer hold the title. If you’re unable to repay the loan as agreed, your lender keeps your title and repossess your vehicle.

The same rules apply to a mortgage loan, where the property you financed serves as the collateral. If you can't repay your mortgage or miss multiple monthly payments, the lender will foreclose on your home.

Unsecured loan definition

Unsecured loans are the opposite of secured loans, as they don't require collateral. But, since there’s nothing of value to secure the loan, the lender takes more of a risk lending money to a borrower who could potentially default. Because of this, unsecured loans often have higher interest rates and stricter credit requirements.

Although you don’t run the risk of losing something valuable with an unsecure loan, you may find it more difficult to qualify, especially if you don’t have a good credit score. That’s because many lenders view your credit history to gauge whether you’re likely to repay your loan. If you have bad credit, they may see that as a sign that you won’t pay them back.

That isn’t to say that you need good credit to get an unsecured loan. Many lenders, including Advance America, offer unsecured loans to borrowers with poor credit. Payday Loans are a good example of unsecured loans for bad credit.

What type of loan is a Payday Loan?

Because Payday Loans don't require a form of collateral, they are considered unsecured personal loans.

While you won't risk losing your car or home if you can't repay a Payday Loan, it’s important to note that they do come with higher interest rates or fees compared to secured loans. Therefore, it's important to compare payday lenders and choose the one with competitive rates and terms.

How an unsecured Payday Loan works

Payday Loans are short-term, unsecured loans that you receive in one lump sum. In other words, it isn't like a Line of Credit where you can withdraw from it as needed. Instead, you'll receive your money, use it accordingly, and pay it back within the repayment period.

Although Payday Loans are unsecured, they are fairly easy to qualify for and often don't require a credit check because they are based on your anticipated paycheck. Many lenders, including Advance America, even let you apply for Payday Loans online.

Here's how the process works:

  1. Compare your loan options and choose a reputable payday lender.
  2. Apply for the loan online or in-store.
  3. Procure the documents needed for the loan application, such as a form of ID, pay stubs, bank statements, proof of income, and your checking account number.
  4. Fill out and submit the Payday Loan application.
  5. Receive the funds via direct deposit, cash, or check.
  6. Review the repayment terms and pay back the loan by your next payday.

Other types of unsecured loans

In addition to Payday Loans, here are a few other types of unsecured loans:

Line of Credit

A Line of Credit works kind of like a credit card in that you’re approved for a maximum borrow amount (your credit line) and can withdraw money up to that approved amount as needed.

Although you can tap into the funds from your Line of Credit whenever you want, this is still a loan that you’ll need to repay. Depending on your lender and loan agreement, you’ll make regular payments on the amount you draw from your credit line, plus interest.

Opening a personal Line of Credit is a convenient unsecured option because you can withdraw funds periodically as needed rather than in a lump sum.

Credit cards

Another option if you need quick access to funds is to apply for a credit card. Credit cards have set credit limits, allowing you to spend and borrow up to that limit. Most borrowers can qualify for some type of credit card, but if you have bad credit, you may only be able to get a card with a high interest rate and low credit limit.

Installment Loans

Installment Loans are one of the most popular types of unsecured loans available. With an Installment Loan, you receive money in a lump sum and make regular payments over a few months or years. In other words, you can borrow a larger amount of money and enjoy a longer repayment period.

Unsecured loans vs. secured loans

If you’re considering a Payday Loan, it’s worth noting the pros and cons of unsecured loans and secured loans. For starters, unsecured loans:

  • Don't require collateral.
  • Offer a simple application process.
  • Are widely available through both traditional and alternative lenders.

On the other hand, you may only qualify for a smaller loan amount with bad credit and no collateral. The advantages of secured loans are as follows:

  • Softer credit requirements.
  • Lower rates when backed by collateral.
  • Potentially larger loan limits based on the collateral’s appraised value.

So, what about the drawbacks? Secured loans tend to have slower processing times because the lender needs to assess the collateral. You also risk losing the collateral if you fail to repay the debt.

Apply for an unsecured Payday Loan with Advance America

If you need a quick and easy Payday Loan from a lender that offers same-day funding, consider Advance America. On average, we charge a flat fee of $15 for every $100 you borrow, making our Payday Loans easy to understand and repay! Plus, if you’re approved for your loan before 10:30 AM EST, you can receive your money the same day.

Why wait to get the money you need? Visit your nearest Advance America or apply online now!

About the Author

Jalin Coblentz has contributed to Advance America since 2023. His experiences as a parent, full-time traveler, and skilled tradesman give him fresh insight into every personal finance topic he explores.

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