Secured vs. Unsecured Loans: What's the Difference


5 Differences

Most loans fall into two basic categories: secured and unsecured. Banks and other credit institutions offer both types. But, before a borrower takes the necessary step of applying for a loan, it is important to understand the differences between secured and unsecured loans. Are You Really Ready to Get a Loan?

Secured vs Unsecured Loans

1. Collateral

The main difference between the 2 loans is that a secured loan requires collateral and an unsecured loan does not. In order to obtain a secured loan, the borrower offers an asset (collateral) that the lender can place a lien on until the loan is paid off. If a borrower defaults on the loan, the lender can sell the collateral and the proceeds will go to pay off the debt. An unsecured loan is based on a borrower’s good credit.

2. Repayment

The term or amount of time given to repay a secured loan is typically longer than time to repay an unsecured loan. Without collateral, an unsecured loan is considered a higher risk to the lender. Consequently, they want the loan paid back more quickly. For example, a mortgage is typically a secured loan where you can see repayment terms up to 30 years.

3. Interest Rates

You will find lower interest rates on secured loans as lenders are assuming less risk by involving your collateral.

4. Borrow Limits

Along with lower interest rates, collateral also dictates higher borrowing limits.

5. Application Process

A secured loan is usually a higher amount than an unsecured loan since assets are often tied to it. This can make the application process and approval time for a secured loan more lengthy.

secured vs unsecured loan chart

Learn More

To learn more about business loans, read our Business Loan Buyer’s Guide. Find out what you need to do to apply for a loan: Do You Have What it Takes?


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