Secured vs. Unsecured Loan: What’s the Difference?

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Pros and cons of secured and unsecured personal loans
Pros | Cons | |
---|---|---|
Secured loans | If you have a low credit score, you may have an easier time qualifying compared with an unsecured loan. | If you fail to repay the loan, the lender can seize the collateral. |
Unsecured loans | No collateral is required, so you won’t risk losing an asset. | You’ll need a strong credit score and solid finances to get the best offer. |
How does a secured personal loan work?
What to know about secured personal loans
Uses for secured personal loans
Other types of secured loans
How does an unsecured personal loan work?
What to know about unsecured personal loans
Uses for unsecured personal loans
Other types of unsecured loans
A quick look: Unsecured vs. secured personal loans
Unsecured personal loan | Secured personal loan | |
---|---|---|
Collateral needed? | No. | Yes, typically a savings account or vehicle. |
Qualifying | Lenders qualify borrowers based on credit, income and debt. | Using collateral lowers the lender’s risk and improves your chance of qualifying. |
Rates | Rates range from 6% to 36%, and those with excellent credit scores and low DTIs get the lowest rates. | Rates tend to be lower than rates for unsecured personal loans. |
Risk | Defaulting negatively impacts your credit. | Defaulting negatively impacts your credit and the lender can take possession of your collateral. |
Funding time | Borrowers can receive their money in a day or two. Most loans are funded within a week. | Secured personal loans can take longer to fund than unsecured personal loans but may still be funded in a week or less. |
Should you get a secured or unsecured personal loan?
Article sources
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