Secured vs. Unsecured Personal Loans: Pros & Cons

Secured vs unsecured personal loan comparison

When shopping for a personal loan, you’ll encounter secured and unsecured options. Secured loans require collateral but often come with lower rates, while unsecured loans are collateral-free but may carry higher APRs. This guide breaks down the differences so you can choose the best fit.

Table of Contents

1. What Is a Secured Personal Loan?

A secured personal loan is backed by collateral—such as a savings account, vehicle, or other asset—which the lender can seize if you default. Because the lender’s risk is lower, APRs typically start at 5%–10%.

2. What Is an Unsecured Personal Loan?

An unsecured personal loan does not require collateral. Approval depends on creditworthiness and income. APRs usually range from 6%–36%, reflecting the higher risk to lenders.

3. Pros & Cons of Secured Loans

  • Pros: Lower interest rates, higher borrowing limits.
  • Cons: Risk of losing collateral, longer processing times for asset verification.

4. Pros & Cons of Unsecured Loans

  • Pros: No collateral required, faster approval.
  • Cons: Higher APRs, stricter credit requirements.

5. How to Decide Which to Choose

  1. Assess your credit score and whether you can meet unsecured approval thresholds.
  2. Compare APR and loan amounts: prequalify with LendingClub and Upstart.
  3. Consider collateral risk versus cost savings.
  4. Choose secured if you need a lower rate and have collateral; choose unsecured for speed and simplicity.

This post contains affiliate links. We may earn a commission at no extra cost to you.

Explore Secured Loans on LendingClub → Explore Unsecured Loans on Upstart →

Conclusion

Both secured and unsecured personal loans have distinct advantages. By weighing rate savings against collateral risk and comparing prequalified offers, you can select the loan type that best matches your needs.

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