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Secured vs Unsecured Loans

May 13, 2022

Before Applying For A Loan, Be Sure To Have A Clear Plan.

When you take out a loan, your credit history will greatly determine whether you’ll be eligible for secured or unsecured debt. Secured loans require that you have something you own of value as collateral in case you can’t pay back the loan. Unsecured loans allow you to borrow money without providing collateral.

Happy father & son washing a minivan together.

Here are the differences of both types.

Secured Loan

A secured loan is a loan that is protected by a specific form of collateral, including physical assets such as property and vehicles, or liquid assets such as cash. Important tips to know about secured loans are:

  • Both consumer loans and business loans can be secured.

  • The interest rates, fees, and loan terms can vary for secured loans, depending on the lender, but are typically lower than that of an unsecured loan.

  • It’s usually easier to qualify for a secured loan if you have collateral, as the collateral adds strength to a loan application.

  • The penalty for not repaying a secured loan might result in a repossession of the collateral used to secure the loan. Lack of repayment would also have a negative effect on the borrower’s, co-borrower's, and/or co-signer's credit.

  • In some cases, a secured loan will be recommended to those who are building or repairing their credit.

Examples of secured loans include:

  • Vehicle loan

  • Recreational loan (ATV, UTV, RV/Camper, etc.)

  • Mortgage loan

  • Share-Secured, or Savings-Secured, loan

  • Secured credit card

  • Secured lines-of-credit

  • Car title loan or secured personal loan

  • Business loan for property and equipment

Unsecured Loan

An unsecured loan is a loan that does not require collateral. Important tips to know about unsecured loans include:

  • An unsecured loan is supported only by the borrower’s creditworthiness, rather than by collateral. Lenders review the credit score, history, and debt-to-income ratio of the borrower to determine if they will qualify and if the loan will be affordable.

  • Because unsecured loans are not protected by collateral, they are riskier for lenders. As a result, these loans typically come with higher interest rates and may require a higher credit score to qualify.

  • Unsecured loans generally offer shorter terms than that of a secured loan due to the added risk involved for the lender.

  • Failure to repay an unsecured loan would result in damage to the borrower’s, co-borrower's, and/or co-signer’s credit. As there is no collateral to repossess, if an unsecured loan reaches a default status (unpaid for 30-90 days) it could be sent to a collection agency and result in a court summons.

Examples of unsecured loans include:

  • Personal loan (emergency, medical bills, moving, funeral, wedding, new baby, etc.)

  • Credit card

  • Personal line-of-credit

  • Student loan

  • Home improvement loan

  • Business loan

  • Car title loan or secured personal loan

  • Business loan 

Summing It Up

Just because you can get a loan doesn’t mean you should. Make sure you are comfortable with the repayment time frame. Do your research and take your time understanding the particulars of your situation before you sign on the dotted line.

Additional Resources

For more information about loans, visit under the “Loans” tab. You can also give us a call at 315-735-8571 to talk with one of our friendly Member Service Representatives about your options. 

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