Secured Loan vs. Unsecured Loan: What’s the Difference?
Written by
Sarah Silbert
Edited by
Melanie Grafil
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A secured loan is a loan where you use money or property to “secure” the funds you’re borrowing. It can be a good option for those with lower credit scores who wouldn’t meet the requirements for an unsecured loan.
An unsecured loan, on the other hand, is a loan that doesn’t require any collateral up front. It’s generally more difficult to qualify for an unsecured loan.
Here’s how to decide which loan type is right for you.
Key Differences Between a Secured Loan and an Unsecured Loan
Beyond the need for collateral, there are some key differences between secured and unsecured loans. Make sure you’re familiar with these differences before you apply.
| Feature | Secured Loan | Unsecured Loan |
|---|---|---|
| Funds received | May take longer to confirm collateral before funding | As quickly as 1 to 2 days |
| Interest type | Generally fixed — interest rates may be lower | Generally fixed — interest rates may be higher |
| Collateral required? | Yes | No |
| Best for | Low credit scores, possibly lower interest rates | Higher credit scores, faster approval |
| Credit needed | Varies, though some lenders don’t have minimum credit score requirements | Varies, though usually a minimum credit score of 580 is required |
| Common uses | Mortgages, auto loans | Debt consolidation, personal expenses |
What Is a Secured Loan?
A secured loan is a loan that requires collateral up front to “secure” the money you’re borrowing. The collateral could be a physical asset, like your car or your home, or funds such as a savings account. If you don’t pay back the loan, the lender can take your collateral as repayment.
Mortgages and auto loans are two common examples of secured loans, though it’s possible to get a secured personal loan even if you’re not using the funds for a physical asset like a house or car.
You can find secured loans at a variety of lenders, including banks, credit unions and online-only loan companies.
What Is an Unsecured Loan?
An unsecured loan is a loan that is not backed by collateral. When you apply and are approved for an unsecured loan, you’ll simply sign the loan agreement.
Most personal loans are unsecured. Compared to secured loans like mortgages, unsecured loans are often for smaller amounts of money. An unsecured loan could be used for debt consolidation, to pay for emergency expenses, or to fund a large purchase, among other reasons.
Unsecured loans, like secured loans, are available through a variety of lenders. You can also find them at banks, credit unions and online lenders.
How Does a Secured Loan Work?
This is a quick overview on getting a secured loan.
Step 1: Application
First, you’ll need to apply through a lender either online or in person. Secured loans don’t always require a minimum credit score, but you’ll still need to provide some financial information such as proof of income.
Step 2: Lender Places a Lien
When you’re approved for a secured loan and sign the paperwork, the lender asserts a legal claim, called a lien, on the asset you put up as collateral.
If you default — in other words, you stop making payments because you’re not able to repay, the lender can seize your asset to.
If you can keep up with payments, though, the lien will be removed on your asset once you make the final repayment.
Step 3: Verification and Funding
The lender may need to verify and appraise the asset you’re offering up as collateral. It can take a bit longer to get funds through a secured loan compared to an unsecured loan at this stage.
How Does an Unsecured Loan Work?
The requirements for getting an unsecured loan are more stringent than those for a secured loan. You’ll generally need to have a credit score of 580 or higher to qualify, and you’ll need to include documents like proof of income in your application.
Since you don’t need to provide collateral with an unsecured loan, the funding process is often quicker than with secured loans.
Pros and Cons of Secured vs. Unsecured Personal Loans
There are advantages and disadvantages to both secured and unsecured loans. Make sure you’re familiar with all of them before you apply.
Secured Loan Pros
- Easier to get for those with lower credit
- May offer lower interest rates
- You may be able to borrow more money in return for securing the loan with collateral
Secured Loan Cons
- Risk of losing your collateral if you can’t repay the loan
- Often takes longer to get funds compared to unsecured loans
- Can damage your credit score if you don’t make payments on time
Unsecured Loan Pros
- No risk of losing assets because no collateral is required
- Generally offers faster funding than secured loans
- Compared to secured loans, you may have more flexible options for usage, since secured loans are often mortgages or auto loans
Unsecured Loan Cons
- Stricter eligibility requirements, including a minimum credit score
- Interest rates may be higher than secured loans
- As with secured loans, there’s the risk of damaging your credit score if you don’t make on-time payments
How To Choose the Right Option for You
If you’re not sure whether a secured loan or an unsecured loan is right for you, it often comes down to your credit score and the specific reason you’re looking to borrow money. Here’s a cheat sheet that can help you find the right option for your situation.
| If You… | Go With… |
|---|---|
| Want a fixed monthly payment and clear end date | Secured loan |
| Need flexibility to borrow as you go | Unsecured loan |
| Don’t have collateral or assets to secure a loan | Unsecured loan |
| Have an asset you can use to secure a better rate | Secured loan |
| Want to consolidate multiple debts into one payment | Secured loan |
| Have unpredictable or ongoing expenses (like home repairs) | Unsecured loan |
How To Apply for a Secured Loan or an Unsecured Loan
If you’re not sure how to get a personal loan, the good news is that the steps are similar for both secured and unsecured loans.
First, you’ll need to gather basic documents for your loan application. These include:
- A government-issued ID such as a driver’s license or passport
- Recent pay stubs to provide proof of income
- Tax returns
- Bank statements
- Employment verification
3 Things To Keep in Mind As You’re Applying for a Loan
There are a few more things to keep in mind:
1. Stay On Top of Your Credit
You should check your credit score before you start applying for either type of loan. As mentioned above, unsecured loans have more stringent credit requirements than unsecured loans. Make sure you meet a lender’s requirements before applying for either type of loan.
2. Find the Right Lender To Get the Best Rate
You can find both types of loans through a variety of lenders, both online and in person. It’s always helpful to comparison-shop to find the best interest rate, so don’t just go with the first option you find.
3. Approval Timelines Vary, But Can Be Quick
You could get approved for an unsecured loan and get funds as soon as the same or next business day. Online lenders are particularly speedy when it comes to approving and funding unsecured personal loans, while brick-and-mortar businesses may take a bit longer.
Getting an unsecured loan is generally quicker than getting a secured loan since there’s no collateral involved. For instance, it can take as long as 30 to 45 days to get a mortgage, a common type of secured loan.
FAQs About Secured Loans and Unsecured Loans
Here are answers to some of the most common questions about secured and unsecured personal loans.- Which one is easier to get?
- Secured loans are easier to get because you're putting up collateral to "secure" the money you're borrowing.
- Which has lower interest rates?
- Secured loans often have lower interest rates because the collateral you provide lessens the risk to the lender.
- Can I use either for debt consolidation?
- Yes, you can use both secured and unsecured loans for debt consolidation. A secured debt consolidation loan could be a personal loan or a home equity loan or HELOC.
- How do they affect credit score?
- Both secured and unsecured loans can negatively impact your credit score if you fall behind on payments. However, both can improve your credit score if you do stay on top of payments.
- Can I switch from one to the other later?
- You can switch from a secured loan to an unsecured loan or vice versa, but that would involve a new loan application. You can't switch an existing loan from secured to unsecured.
Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.
- Consumer Financial Protection Bureau (CFPB). "Differentiating between secured and unsecured loans."
- Capital One. 2024. "What credit score do you need for a personal loan?"
- Citi®. 2025. "What is an Unsecured Personal Loan?"
- Equifax. "What Are Secured Loans and How Do They Work?"
- Navy Federal Credit Union. "6-Step Guide to Navigating the Mortgage Approval Process."
