Secured vs. unsecured loans: What’s the difference?
When it comes to borrowing money, you typically have two types of products you can choose from: secured and unsecured loans. Secured loans require collateral, while unsecured ones don’t. And while both can get you funds when you need them, the two have vast differences in risk, interest rates, approval difficulty, and more.
Here’s what to know about secured vs. unsecured loans and how to decide which might be the better choice for your situation.
Secured vs. unsecured loans: Key differences
| Secured loans | Unsecured loans | |
|---|---|---|
| Require collateral? | Yes | No |
| Interest rates | Usually lower (due to less risk for the lender) | Usually higher (due to higher risk for the lender) |
| Borrower risk | Higher because the bank can seize the property used to secure the loan if you don’t make your payments | Lower because you have no asset on the line |
| Approval difficulty | Easier | Harder |
| Loan amounts | Larger | Smaller |
| Repayment terms | Longer | Shorter |
Secured loans require some sort of collateral for the loan — this is something the bank can seize if you fail to make your payments. Unsecured loans, on the other hand, don’t involve collateral. This makes them riskier for lenders (but less of a risk for borrowers). Lenders typically mitigate this risk by imposing higher credit score requirements, shorter repayment terms, smaller loan amounts, and higher interest rates.
Find out: What is a good credit score?
Secured vs. unsecured loan: Which should you choose?
| If you want… | Consider… | Why? |
|---|---|---|
| Lower interest rates | Secured loans | Backed by collateral, so lenders take on less risk |
| No risk to your assets | Unsecured loans | No collateral required, so your property (like your home or car) isn’t at stake |
| Easier approval for lower credit scores | Secured loans | Collateral improves your chances of qualifying, even with less-than-perfect credit |
| Faster funding | Unsecured loans | No appraisal or asset verification needed |
| Higher loan amounts | Secured loans | Loan amounts are typically based on the value of your asset |
| Short-term funding | Unsecured loans | Typically have shorter payoff timelines |
You’re generally going to have an easier time qualifying for a secured loan since there’s less risk to the lender. This usually results in lower rates for secured loans, too. However, you’re taking on more risk personally by putting up collateral. You could lose your house, car, or other property used to secure the loan if you don’t keep up with your payments.
Unsecured loans eliminate this potential pitfall. But they also tend to be harder to qualify for compared to secured loans, due to the lender taking on more risk. This also usually results in less favorable rates, loan amounts, and repayment terms.
Both types of loan come with their own trade-offs to consider. The right choice between a secured vs. an unsecured loan will depend on your finances, credit, needs, and other factors.
What is a secured loan?
A secured loan is a type of debt that is collateralized, meaning the borrower gives the lender a stake in some sort of collateral (like a car or home). If the borrower doesn’t adhere to the repayment terms of the loan, the lender can seize that asset to recoup costs on the money still owed.
Secured loans are often used for large purchases that are then paid off over a long period of time. They can have fixed or variable rates, and the amount you can borrow generally depends on the value of the asset you’re using as collateral. Because of this, you’ll usually need some sort of appraisal or valuation before you close on a secured loan.
Examples of secured loans
There are many types of secured loans. Some of the most common include:
- Mortgages: Secured by your home
- Auto loans: Secured by your vehicle
- Home equity loans: Secured by your home
- Home equity lines of credit (HELOCs): Secured by your home
- Secured credit card: Secured by a cash deposit
Pros and cons of secured loans
Pros
- Lower interest rates
- Long repayment terms
- Easier to qualify for
Cons
- Require collateral to qualify
- Approval process can be long
- Puts your collateral at risk if you don’t make your payments
What is an unsecured loan?
Unlike a secured loan, an unsecured loan doesn’t require collateral. This makes these types of loans riskier for lenders as they can’t seize any assets if you don’t make your payments.
Unsecured loans can have fixed or variable rates, and these rates then to be higher compared to those of secured loans. They also typically have shorter repayment terms and require higher credit scores for approval, due to the heightened risk for the lender. Borrowers often use these sorts of loans for short-term needs (like medical bills) and small- to mid-size purchases (like renovations, vacations, or wedding expenses).
Learn more: What are emergency loans?
Examples of unsecured loans
There are a few types of unsecured loans you might be familiar with. These include:
- Credit cards: These come with a revolving credit line you can use up to a certain limit.
- Student loans: These can be used to cover your higher education costs.
- Personal loans: These provide a lump sum payment that you’ll repay in installments over time.
- Personal lines of credit: These work similarly to credit cards with a revolving credit line that you can borrow from on an as-needed basis.
Pros and cons of unsecured loans
Pros
- Require no collateral
- Quick funding
- Shorter approval and processing time
Cons
- Harder to qualify for
- Higher interest rates
- Lower loan amounts
Interest rates: Secured vs. unsecured loans
Interest rates tend to be higher for unsecured loans compared to secured loans due to the higher risk they present to lenders. For example, the average rate for a 30-year, fixed-rate mortgage was 6.30% as of April 17, 2026, according to Freddie Mac data. In comparison, the average rate for an unsecured credit card was 21%, according to the latest Federal Reserve data.
Keep in mind that interest rates vary widely by borrower. Your credit, loan amount, debt-to-income (DTI) ratio, and repayment term all play a role in the rate you get. Generally, the best rates — for both secured and unsecured loans — go to borrowers with the highest credit scores.
Borrowing limits: How much can you get?
Borrowing limits are usually higher for secured loans, since they carry less risk for lenders. This is why these types of loans are often used for large purchases — things like houses and cars. With secured loans, the amount you can borrow depends largely on your lender and the value of the collateral. Your credit score, DTI ratio, and other financial factors impact your loan amount, too.
Unsecured loans tend to have lower limits. Exactly how much you can borrow will depend on the lender, since there’s no collateral to factor into borrowing limits. Like with a secured loan, your credit score, DTI ratio, and loan term will also factor into how much you can borrow.
Secured vs. unsecured personal loans
Personal loans are often unsecured. Some financial institutions offer secured personal loans, too, which usually have lower rates and can be easier to qualify for as you’ll provide collateral. You might also be able to borrow more and get a longer repayment term with a secured personal loan, depending on the lender.
Keep in mind that personal loan offerings vary quite a bit between institutions. While many lenders offer unsecured personal loans, secured options tend to be more limited — some lenders offering secured personal loans include OneMain Financial, Navy Federal, and Opportun as of April 2026.
Keep reading: How to get a personal loan
Secured vs. unsecured loans FAQs
This depends on your finances and goals. If you have good credit, need only a small amount, and don’t want to put an asset at risk, an unsecured loan can be a smart idea. On the other hand, if you need to borrow a large amount, want a lower rate, and prefer an extended repayment period, then a secured loan might be a better fit.
The main risk of a secured loan is that you could lose your collateral if you fail to make your payments. For example, not keeping up with your mortgage payments could result in your lender seizing your house and foreclosing on it. This can also greatly damage your credit and make it harder to qualify for loans in the future.
In comparison, unsecured loans don’t require collateral and therefore your assets aren’t at risk of being seized by the lender if you don’t make your payments. This doesn’t mean there are no potential pitfalls with unsecured loans, though. While lenders can’t take your property if you don’t pay your loan back, they can send you to collections and even sue you to recoup the costs. You’ll also see negative impacts to your credit.
It’s generally easier to qualify for a secured loan compared to an unsecured loan. This is because providing collateral for a secured loan lessens the risk for the lender.
