Secured vs. Unsecured Loans

As millions of people can attest, loans can be the building blocks to a better life. After all, most Americans can’t amass the type of disposable income it takes to finance a home, car, lifestyle, and education without taking out a loan now and again.

While there are various types of loans, we want to take a closer look at two of the most common: secured and unsecured loans.

Each loan type has its merits, and each works well for a particular set of circumstances. The critical thing to keep in mind is that you should take time to learn about the difference before choosing which type is best for you and your needs. A loan can be a big undertaking, so be sure you know where you stand before you leap.

General Requirements for Obtaining a Loan

In general, lenders will require you to meet a few standard prerequisites before offering a loan. This checklist allows them to vet borrowers to ensure that the loan gets repaid in full. If you don’t meet these requirements, you likely won’t be able to obtain a reasonable loan, secured or unsecured.

These prerequisites include:

  • You must be at least 18 years old. While this is the absolute minimum age, lenders prefer that borrowers be at least 21 years old.
  • You must earn at least $800 a month, but preferably more like $2,000 a month to ensure timely repayment.

A common question we often get is where you can find a personal loan with guaranteed approval. Be aware that, regardless of the type of loan you choose, lenders are prohibited from guaranteeing approval.

Each loan gets considered on a case-by-case basis by looking at a variety of factors, including your financial well-being, your credit score, and your income level. If you get denied, work to improve your credit score or keep applying at different companies because various lenders have widely contrasting requirements. Consider offers from various lenders, then weigh your options to see what makes the most sense for you. After all, taking out a loan is a significant financial decision.

Now let’s take a look at how secured and unsecured loans compare.

Secured Loans

Secured loans are loans you can obtain by putting up property as collateral. If you default on the loan or fail to make a payment for a while, the lender can recover its investment by taking possession of that collateral, which might include cars, homes, boats, or other valuables.

Typically, secured loans will have you offering up your car or mortgage as the collateral of choice. As you can imagine, this is a big risk for you. Let’s take a look at some of the pros and cons to get a better understanding.


  1. More significant loan amounts: Compared to unsecured loans, you may be able to obtain significantly more money for your loan because lenders know they have something to fall back on – your property – if you break the repayment contract.
  2. More reasonable terms: It is common for secured loans to have more extended repayment plans, possibly even decades.
  3. Low Interest: Typically, a secured loan comes with a lower interest rate than its unsecured counterpart, again because of the lender’s reduced risk.


  1. Loss of property: You risk losing your collateral if you can’t keep up with payments.
  2. Puts a hit on your credit score.

Unsecured Loans

These loans are prevalent, in the form of things like student loans, credit cards, and personal loans. They are distinctly different from secured loans because there you don’t have to put up collateral. That doesn’t mean you won’t get pestered to keep your payments current, but it does mean that you won’t risk losing your cherished property.


  1. You don’t risk losing your property: You don’t have to offer up collateral with an unsecured loan. You can keep the properties that are important to you.
  2. It is generally easier to get approved: With less investigating into your assets, lenders are more willing to approve you for an unsecured loan. Credit-card companies will practically give away credit cards, so be mindful of the fine print and closely monitor your financial status so you are confident you can afford the payments.


  1. Higher rates and payment minimums: These are unfortunate pitfalls of not having a piece of collateral to offer. The lender will want to get its money back more quickly.
  2. Smaller loan sums: With no collateral to support giving you a lot of money, you will typically be able to get a smaller unsecured loan versus a secured one.
  3. The lenders work hard to get their money back: If you don’t keep up with your payments, you can expect a slew of letters, emails, phone calls – and even personal visits from the lender.


Vivaan Marsh is a professional writer, editor and an expert in personal finance. Her career as a professional writer stretch for over 11 years. One of her passions in life is to help everyday families with there financial problems, making their life a bit easier and explaining complicated topics in an easy way. Read more >

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