While payday loans can come with uncertainties, the biggest question is often: What’s the difference between a secured and an unsecured loan?
For payday loans, you don’t need to put your car or your home on the line to borrow. But what does that mean exactly and is it risk-free?
Truth is, most borrowers don’t realize how much is at stake when choosing a payday loan. Here you can find out exactly how payday loans work and — despite the lack of collateral needed — where the hidden costs and consequences can lie.
Secured vs. unsecured loans: What’s the difference?
Secured loans
Secured loans are backed by collateral, i.e., something of significant value, like a vehicle or home. These act as security for the lender, who will attempt to seize the collateral if you’re unable to repay the loan. These loans often come with lower interest rates. But for borrowers with limited savings, the risk can be high.
Unsecured loans
Unsecured loans don’t require collateral. Instead, approval depends more on your creditworthiness and income. Because there’s more risk for the lender, unsecured loans typically carry higher interest rates and stricter repayment terms. Most payday loans fall into this category.
Are payday loans secured or unsecured?
Most payday loans are unsecured. To be approved, you’ll typically provide a postdated check or electronic access to your bank account. In practice, you’re responsible for repaying within a short window — usually two to four weeks — and the interest rates are almost always extremely high.
Understanding title loans
A lesser-known but important exception to be aware of is a title loan. These can work almost like a secured payday loan.
With a title loan, you use your vehicle title as collateral. If you default, the lender can then repossess your car. Title loans generally offer slightly lower rates compared to regular payday loans (i.e., 300% annual percentage rate, or APR, rather than 400%) but at significantly greater risk.
What are the real risks of unsecured payday loans?
High fees and APRs
Typical payday loan fees range from $15 to $30 per $100 borrowed — that’s equivalent to APRs approaching 400%. For instance, borrowing $100 with a $15 fee means you’ll need to pay back $115 within just two weeks.
Short repayment windows
Most payday loans are due within two to four weeks, which in some cases could be before your next paycheck. And rolling over the loan can increase the total cost and potentially trap borrowers in a recurring debt cycle.
Still dangerous without collateral
While payday loans don’t require collateral, many lenders will access your bank account directly for repayment. So if you're short on funds, this will likely trigger overdraft or non-sufficient funds (NSF) fees and compound the financial strain.
This is common practice among payday lenders, unlike apps such as EarnIn, where early access to your earned wages is stress-free — with no mandatory fees or overdraft traps.
How payday loans affect your debt profile
Impact on credit score
Most payday lenders don’t report your payments to credit bureaus. That means regular, on-time repayment doesn’t help boost your credit. But, if you default and the debt is eventually sent to collections, that can seriously impact your credit score.
Broader financial consequences
Payday loans don’t help you build credit history, and their aggressive repayment structure can interfere with budgeting. It’s also possible that future lenders may view payday loans negatively when evaluating your creditworthiness.
Common misconceptions about payday loans
“You don’t need collateral, so there’s no risk.”
- False. While collateral isn’t required, the financial risk can be real, and repayment methods often involve automatic bank withdrawals, which could trigger an overdraft.
“Payday loans help build credit.”
- False. Most payday lenders don’t report payment activity to credit bureaus, so regular repayment won’t improve your score.
“A flat fee is cheaper than interest.”
- Misleading. A flat fee of $15 per $100 may not look like interest, but it equates to nearly 400% APR. Most credit card rates are well below 30%.
Tips for using payday loans safely
Most payday loans are unsecured offers, and while that means your car or home isn’t at risk, your financial stability could be. Before taking on a payday loan, make sure to:
- Understand the fee structure and total payback amount.
- Use it only as a last resort where you can afford to repay promptly.
The EarnIn Advantage: A smarter way to access your paycheck
Access cash without the stress
With EarnIn's Cash Out feature, you can get up to $150/day, with a max of $750 between paydays, without interest and no mandatory fees.1 It’s not a loan — it’s the money you’ve earned — just without having to wait until payday.
This helps you take the stress out of managing your monthly budget, without needing to lean on predatory lending.
Built for real life
With EarnIn, you can say bye-bye to overdraft traps and high-risk payday debt. With no hidden costs or traps, EarnIn is a smart and effective way to make your money work to fit your life, not the other way round.
Plus, EarnIn’s Balance Shield2, Lightning Speed3 transfers, and Credit Monitoring4 tools give you more control and transparency over your hard-earned cash.
FAQs
What type of loan is a payday loan?
A payday loan is a short-term, unsecured loan with high fees and extremely steep interest, generally meant to be repaid before or by your next payday.
Can payday loans hurt your credit?
Yes, they can. While payday lenders don’t report to credit bureaus, if the loan defaults and ends up with collections, then that can significantly damage your credit score.
What loans are unsecured?
Payday loans, regular personal loans, and credit cards are all examples of unsecured loans. This is essentially any loan where no collateral is required.
How do I know if my loan is secured or unsecured?
If no asset is required — other than bank access or a postdated check — it’s an unsecured loan. If the lender holds property or a title as collateral, it’s secured.
Please note, the material collected in this post is for informational purposes only and is not intended to be relied upon as or construed as advice regarding any specific circumstances. Nor is it an endorsement of any organization or services.
This Blog was sponsored by EarnIn. While the author received compensation, the information shared is grounded in independent research and intended to provide helpful and accurate guidance to readers.
EarnIn is a financial technology company, not a bank. Banking services are provided by our bank partners on certain products other than Cash Out.
1
A pay period is the time between your paychecks, such as weekly, biweekly, or monthly. EarnIn determines your daily and pay period limits (“Daily Max” and “Pay Period Max”) based on your income and financial risk factors as outlined in the Cash Out Maxes section of our Cash Out User Agreement. EarnIn reserves the right to adjust the Daily Max and Pay Period Max at its discretion. Your actual Daily Max will be displayed in your EarnIn account before each Cash Out.EarnIn does not charge interest on Cash Outs or mandatory fees for standard transfers, which usually take 1–2 business days. For faster transfers, you can choose the Lightning Speed option and pay a fee to receive funds within 30 minutes. Lightning Speed may not be available at all times and/or to all customers. Restrictions and terms apply; see the Lightning Speed Fee Table and Cash Out User Agreement for details and eligibility requirements. Tips are optional and do not affect the quality or availability of services.
2
Balance Shield provides free alerts when your bank account balance drops below the threshold you set in your EarnIn account. You can also enable automatic transfers ($100/day -subject to your available earnings- with a limit of $750/pay period), if your bank account balance falls below your set threshold. If your available earnings are insufficient to transfer the $100, the transfer will not be completed.You choose the speed of these automatic transfers. Standard speed is available at no cost and the transfer typically takes 1-2 business days. Lightning Speed is available for a fee [see Lightning Speed Fee Table] and the transfer typically takes less than 30 minutes. You will also have the option to set a tip for automatic transfers. Tips are optional and can be $0; however, if you choose to set a tip, it will be applied to each Balance Shield transfer. Whether you tip, how much, and how often you tip does not impact the quality and availability of services. You can cancel the alerts and/or transfers at any time in your EarnIn account settings. See the Cash Out User Agreement for more details. While Balance Shield can help you avoid overdrafts, it does not guarantee protection from third-party fees, and its effectiveness depends on your usage and bank activity.3
Lightning Speed is an optional service that allows you to expedite the transfer of funds for a fee. Depending on the product, the fee may be charged by EarnIn or its banking partner. Lightning Speed may not be available in all states and/or to all customers. Restrictions and terms apply. See the Lightning Speed Fee Table for details.4
Your VantageScore 3.0 from Experian® indicates your credit risk level and is not used by all lenders, so don't be surprised if your lender uses a score that's different from your VantageScore 3.0. Learn more.Popular articles
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