Secured vs. Unsecured Loans: What's the Difference?
Updated
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Personal loans are available from banks, credit unions, and online lenders, and can be used for almost any purpose.
There isn't just one type of personal loan, though. Personal loans can be broadly divided into two categories: secured loans and unsecured loans. As you learn the difference between secured vs. unsecured loans, you'll get a sense of which works best for you.
Although secured vs. unsecured loans have some common traits, there are big differences. Some of the key things to know about the differences between secured and unsecured personal loans include:
Let's look a little more closely at some of these key differences between secured vs. unsecured loans so you can better understand which is right for you.
Get the best rates and terms to fit your needs. Here are a few loans we'd like to highlight, including our award winners.
| Lender | APR Range | Loan Amount | Min. Credit Score | Next Steps |
|---|---|---|---|---|
Rating image, 5.0 out of 5 stars.
5.0/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor |
Fixed: 8.99%-29.99% APR (with all discounts)
|
$5,000 - $100,000
|
680
|
|
Apply Now for Discover Personal Loan
Powered by Credible
Rating image, 5.0 out of 5 stars.
5.0/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor |
7.99% - 24.99%
|
$2,500 - $40,000
|
660
|
Apply Now for Discover Personal Loan
Powered by Credible |
Rating image, 4.0 out of 5 stars.
4.0/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor |
6.70% - 35.99%³
|
$1,000 - $50,000¹
|
300
|
When you apply for an unsecured personal loan, the lender has nothing but your promise to guarantee repayment. This is risky for lenders, because a lender who makes an unsecured loan may have difficulty collecting what you owe if you stop making payments.
Lenders want to control risk, so they will assess how qualified you are as a borrower before giving you an unsecured personal loan. Typically, lenders look at your credit score, your income, and your existing levels of debt before deciding to give you an unsecured loan.
If you don't have a solid credit history, you owe a lot of money, or your income is too low and the lender is concerned about your ability to make payments, you won't get approved for an unsecured loan.
This is where the subject of secured vs. unsecured loans takes a turn. With a secured loan, you put up collateral, which means you must have assets (like jewelry, a savings account, or something else of value) to give the lender in case you can't pay the loan. Since the lender has an ownership interest in this collateral, there are far fewer risks in lending to you. If you don't pay, the lender could keep the assets as reimbursement.
Because the risk to the lender is lower, it's much easier to get approved for a loan that's secured than to get approved for an unsecured loan. Even borrowers with a limited credit history or with poor credit often qualify.
With an unsecured loan, you do not need to have any collateral. This means you don't need to put any assets at risk to guarantee the loan. Your property can't directly be taken by the lender in the event you don't pay the loan.
With a secured loan, you do need collateral. In most cases, this means you put some money into a special savings account controlled by the personal loan lender, or you give a lender an ownership interest in a savings or investment account. However, other assets can also be used as collateral, such as a vehicle, your home, or certificates of deposit (CDs). If you don't have assets to use as collateral, you can't qualify for a secured loan.
The amount of collateral required varies depending on the lender's policies. In some cases, you need collateral valued at 100% of the loan amount or close to it. In other circumstances, especially if you have better credit, you can put up some collateral to guarantee the loan, but can borrow more than the collateral is worth.
Typically, when you use investment accounts or a savings account as collateral, letting the value of the account drop below a certain level violates the terms of the loan agreement. This could trigger an immediate obligation to repay your loan if you don't bring the account value up -- your loan terms specify exactly what occurs if this happens.
If you don't pay an unsecured personal loan, a lender can try to collect in a number of ways. The lender reports your delinquent payments to the credit reporting agencies, which hurts your credit score. The lender is also likely to contact you repeatedly to try to get paid.
Lenders may collect debts themselves or, after a certain amount of time has passed, may opt to sell the debt to a collection agency. The lender or collection agency could sue you, take you to court, and get a judgement against you. If you don't pay the judgement, the lender could get a court order to enforce it by garnishing your wages or putting a lien on your property. All of this takes time for the lender and requires court visits and legal fees -- it's not easy for a lender to take your money or property.
On the other hand, with a secured loan, the lender has an interest in the collateral because of the way the loan is structured. It's much easier to take property you pledged to guarantee the loan. Depending on loan terms and state laws, the lender may be able to take the money in your savings or investment account when you default, without any court action. Check your loan agreement to find the exact process for seizure of your collateral.
Because it's so easy for the lender to take the assets guaranteeing the loan, your property is at much greater risk if you don't pay a secured loan. When you fail to pay a secured loan, the lender can also report the default to the credit reporting agency and ruin your credit, just as lenders can with secured loans.
There are key differences between secured and unsecured personal loans. If you have bad credit or otherwise have a hard time qualifying for an unsecured personal loan, a secured loan could provide you with the funding you need. But be aware that a lender can more easily take your property on a secured loan than with an unsecured personal loan -- and you have to tie up some of your assets to qualify for a secured loan.
By understanding these key differences of secured vs. unsecured loans, you can decide which type to apply for, and maximize your chances of getting approved for a loan.
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We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. Motley Fool Money does not cover all offers on the market. Motley Fool Money is 100% owned and operated by The Motley Fool. Our knowledgeable team of personal finance editors and analysts are employed by The Motley Fool and held to the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands. Terms may apply to offers listed on this page.
*Upstart Loan Disclaimer
¹ Your loan amount will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will qualify for the full amount. Minimum loan amounts vary by state: GA ($3,100), HI ($2,100), MA ($7,000).
³ The full range of available rates varies by state. A representative example of payment terms for an unsecured Personal Loan is as follows: a borrower receives a loan of $10,000 for a term of 60 months, with an interest rate of 18.60% and a 8.51% origination fee of $851, for an APR of 23.07%. In this example, the borrower will receive $9149 and will make 60 monthly payments of $258. APR is calculated based on 5-year rates offered in December 2024. There is no downpayment and no prepayment penalty. Your APR will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will be approved.
*SoFi Personal Loan Disclaimer
Fixed rates from 8.99% APR to 29.99% APR. APR reflects the 0.25% autopay discount and a 0.25% direct deposit discount.
SoFi Platform personal loans are made either by SoFi Bank, N.A. or , Cross River Bank, a New Jersey State Chartered Commercial Bank, Member FDIC, Equal Housing Lender. SoFi may receive compensation if you take out a loan originated by Cross River Bank. These rate ranges are current as of 09/18/24 and are subject to change without notice.Not all rates and amounts available in all states. See SoFi Personal Loan eligibility details at https://www.sofi.com/eligibility-criteria/#eligibility-personal. Not all applicants qualify for the lowest rate. Lowest rates reserved for the most creditworthy borrowers. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, income, and other factors.
Loan amounts range from $5,000–$100,000. The APR is the cost of credit as a yearly rate and reflects both your interest rate and an origination fee of 9.99% of your loan amount for Cross River Bank originated loans which will be deducted from any loan proceeds you receive and for SoFi Bank originated loans have an origination fee of 0%-7%, will be deducted from any loan proceeds you receive.
Autopay: The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. Autopay is not required to receive a loan from SoFi.
Direct Deposit Discount: Direct Deposit Discount: To be eligible to receive an additional (0.25%) interest rate reduction on your Personal Loan (your “Loan”), you must set up Direct deposit with a SoFi Checking and Savings account offered by SoFi Bank, N.A., or enroll in SoFi Plus by paying the SoFi Plus Subscription Fee, all within 30 days of the funding of your Loan. Once eligible, you will receive this discount during periods in which you have enabled Direct Deposit to an eligible Direct Deposit Account in accordance with SoFi’s reasonable procedures and requirements to be determined at SoFi’s sole discretion, or during periods in which SoFi successfully receives payment of the SoFi Plus Subscription Fee. This discount will be lost during periods in which SoFi determines you have turned off Direct Deposit to your Checking and Savings account or in which you have not paid for the SoFi Plus Subscription Fee. You are not required to enroll in Direct Deposit or to pay the SoFi Plus Subscription Fee to receive a Loan.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. Motley Fool Money does not cover all offers on the market. Motley Fool Money is 100% owned and operated by The Motley Fool. Our knowledgeable team of personal finance editors and analysts are employed by The Motley Fool and held to the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands. Terms may apply to offers listed on this page.
*Upstart Loan Disclaimer
¹ Your loan amount will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will qualify for the full amount. Minimum loan amounts vary by state: GA ($3,100), HI ($2,100), MA ($7,000).
³ The full range of available rates varies by state. A representative example of payment terms for an unsecured Personal Loan is as follows: a borrower receives a loan of $10,000 for a term of 60 months, with an interest rate of 18.60% and a 8.51% origination fee of $851, for an APR of 23.07%. In this example, the borrower will receive $9149 and will make 60 monthly payments of $258. APR is calculated based on 5-year rates offered in December 2024. There is no downpayment and no prepayment penalty. Your APR will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will be approved.
*SoFi Personal Loan Disclaimer
Fixed rates from 8.99% APR to 29.99% APR. APR reflects the 0.25% autopay discount and a 0.25% direct deposit discount.
SoFi Platform personal loans are made either by SoFi Bank, N.A. or , Cross River Bank, a New Jersey State Chartered Commercial Bank, Member FDIC, Equal Housing Lender. SoFi may receive compensation if you take out a loan originated by Cross River Bank. These rate ranges are current as of 09/18/24 and are subject to change without notice.Not all rates and amounts available in all states. See SoFi Personal Loan eligibility details at https://www.sofi.com/eligibility-criteria/#eligibility-personal. Not all applicants qualify for the lowest rate. Lowest rates reserved for the most creditworthy borrowers. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, income, and other factors.
Loan amounts range from $5,000–$100,000. The APR is the cost of credit as a yearly rate and reflects both your interest rate and an origination fee of 9.99% of your loan amount for Cross River Bank originated loans which will be deducted from any loan proceeds you receive and for SoFi Bank originated loans have an origination fee of 0%-7%, will be deducted from any loan proceeds you receive.
Autopay: The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. Autopay is not required to receive a loan from SoFi.
Direct Deposit Discount: Direct Deposit Discount: To be eligible to receive an additional (0.25%) interest rate reduction on your Personal Loan (your “Loan”), you must set up Direct deposit with a SoFi Checking and Savings account offered by SoFi Bank, N.A., or enroll in SoFi Plus by paying the SoFi Plus Subscription Fee, all within 30 days of the funding of your Loan. Once eligible, you will receive this discount during periods in which you have enabled Direct Deposit to an eligible Direct Deposit Account in accordance with SoFi’s reasonable procedures and requirements to be determined at SoFi’s sole discretion, or during periods in which SoFi successfully receives payment of the SoFi Plus Subscription Fee. This discount will be lost during periods in which SoFi determines you have turned off Direct Deposit to your Checking and Savings account or in which you have not paid for the SoFi Plus Subscription Fee. You are not required to enroll in Direct Deposit or to pay the SoFi Plus Subscription Fee to receive a Loan.
