What’s the Difference Between a Secured and an Unsecured Loan?

At some point, most people will need to borrow money—whether it’s for buying a home, financing a car, starting a business, or covering unexpected expenses. But not all loans work the same way. One of the most important distinctions to understand is the difference between secured loans and unsecured loans.

Both have their advantages and drawbacks, and knowing which is right for you can save you money and stress. Let’s break them down.

What Is a Secured Loan?

A secured loan is backed by collateral—an asset the lender can take if you fail to repay. Common examples include:

• Home loans (mortgages) – Your home is the collateral.
• Auto loans – The car you’re financing secures the loan.
• Boat or motorcycle loans – The financed vehicle is the asset.
• Pawn shop loans – The item you pawn is the collateral.
• Car title loans – Your vehicle’s title is used as security.

Because the lender has a tangible asset to fall back on, secured loans usually offer lower interest rates and are easier to qualify for, even if your credit isn’t perfect. This is what we provide with our lending network of car title loans. 

Pros of Secured Loans

• Lower interest rates compared to unsecured loans
• Easier approval for borrowers with low or fair credit

Cons of Secured Loans

• You risk losing the asset if you default
• May require additional insurance coverage (especially for homes and vehicles)

What Is an Unsecured Loan?

An unsecured loan doesn’t require collateral. Instead, lenders approve you based on your creditworthiness, income, and financial history.

Common examples include:

• Credit cards – You can use the funds without pledging an asset.
• Personal loans – Fixed-term loans for various purposes.
• Student loans – Backed by your promise to repay, not an asset.

Since the lender has no property to seize if you don’t pay, unsecured loans typically have higher interest rates and stricter approval requirements.

Pros of Unsecured Loans

• No collateral required—no risk of losing property
• Funds can often be used for any purpose

Cons of Unsecured Loans

• Higher interest rates than secured loans
• Requires good to excellent credit for approval

Key Differences: Secured vs. Unsecured Loans

 

To quickly recap, here’s what you’ll need to know if you’re choosing between a secured and unsecured loan: 

 

Feature	Secured Loan	Unsecured Loan
Collateral	Required	Not required
Interest Rates	Lower	Higher
Approval	Easier, even with lower credit	Harder—requires strong credit profile
Risk	Asset can be repossessed if you default	No asset seizure, but credit damage
Common Examples	Mortgages, auto loans, title loans	Credit cards, personal loans, student loans

Which Type of Loan Should You Choose?

 

There are pros and cons to both loan types, so ultimately if it is up to you, the choice between the two will likely come down to personal preference. But in general: 

• If you want lower rates and are comfortable pledging an asset, a secured loan might be the better option.
• If you don’t want to risk property and have strong credit, an unsecured loan offers flexibility without collateral.

Always compare interest rates, repayment terms, and total costs before deciding. And remember—defaulting on either type will damage your credit score, even if the lender can’t seize property.