Secured personal loans are usually better if you want lower interest rates or have poor credit, but they require collateral.
September 28, 2026
Secured personal loans often come with lower rates and easier approval, but they require collateral. Unsecured loans skip the collateral and can fund faster, though they may cost more. The right pick depends on your credit, your risk tolerance, and how much you need to borrow.
Deciding between secured or unsecured personal loans—and which is right for you—comes down to one thing: collateral. Secured loans require it; unsecured loans do not. Think of a secured loan as leaving a valuable item as a deposit, while an unsecured loan is a lender trusting your track record to repay.
Personal loans can provide access to funds for debt consolidation, medical bills, home improvements, and major purchases. Before you apply, it helps to compare rates, fees, and terms from multiple personal loan lenders.
Whatever the reason people borrow money, choosing a personal loan comes down to one key decision: secured or unsecured. Secured loans require collateral like your car or savings account, while unsecured loans are based on your creditworthiness. Each option has distinct pros and cons.
A secured personal loan is a loan that requires collateral to guarantee repayment. You must put up an asset the lender can claim if you fail to repay. That asset could be cash in a savings account, a vehicle, your home, investments, or valuables like jewelry. The specific options depend on your lender.
Using collateral can make it easier to qualify because some lenders view secured loans as lower risk. However, you're putting your property at stake—if you default, the lender can seize your collateral to recover its losses.
Secured personal loans come with a clear tradeoff: easier approval and lower rates in exchange for putting an asset at risk.
Pros:
Easier qualification: Collateral reduces lender risk, which may make approval more likely, even with poor credit.
Lower interest rates: Secured loans may cost less to borrow because the collateral lowers the lender's risk.
Higher borrowing limits: Collateral may allow larger loan amounts with some lenders.
Credit-building opportunity: If the lender reports to credit bureaus, on-time payments may help your credit over time.
Cons:
Risk of losing collateral: Defaulting means the lender can seize your car, savings, or whatever asset secures the loan.
Potential credit damage: Missing payments can further harm an already poor credit score.
Limited lender options: Fewer lenders offer secured personal loans than unsecured ones.
Longer approval process: Evaluating and appraising collateral can extend the application timeline.
An unsecured personal loan is a loan that doesn't require collateral. You qualify based on your creditworthiness—including your credit score, income, and debt-to-income ratio—rather than pledging an asset as security.
These loans can be harder to qualify for since lenders have no collateral to claim if you default, so they often expect stronger credit. That said, there are personal loans for borrowers across all credit scores, and some lenders work with people who have fair or poor credit.
Unsecured personal loans trade collateral-free borrowing for stricter credit requirements and higher rates.
Pros:
No collateral at risk: Your assets are safe since nothing secures the loan—you can't lose your car, home, or savings if you default.
Wide lender availability: Most banks, credit unions, and online lenders offer unsecured personal loans.
Faster approval: Without collateral to appraise, some lenders can process and fund loans more quickly.
Cons:
Stricter credit requirements: Lenders lean more on your credit score and financial profile since they have no collateral protection.
Higher interest rates: You may pay more in interest than on a secured loan, since the lender takes on more risk.
Lower borrowing limits: Loan amounts are often smaller since lenders are less comfortable lending large sums without collateral.
Here's how secured and unsecured personal loans generally compare. Your actual terms depend on your lender, credit, and income; as of 2026, loan amounts can reach $100,000 or more, according to the credit bureau Experian.
Feature | Secured Loans | Unsecured Loans |
Collateral required | Yes (car, savings, home, etc.) | No |
Interest rates | Typically lower | Typically higher |
Credit requirements | More flexible; collateral can offset a lower score | Stricter; strong credit needed to qualify and for lower rates |
Loan amounts | Often larger, based on collateral value | Often smaller, based on income and credit |
Approval time | Often longer, since collateral must be appraised | Often faster, sometimes as soon as the same day |
Risk to borrower | Can lose collateral if you default | No asset loss, but credit damage |
Debt-to-income ratio | May allow a higher DTI, since collateral lowers risk | Usually requires a lower DTI |
Lender availability | Limited (some banks, credit unions, online lenders) | Widely available (most banks, credit unions, online lenders) |
In plain terms: with a secured loan, pledging an asset can help you qualify even if your credit is weak or a large share of your income already goes toward debt. Unsecured lenders lean more on strong credit and a lower existing debt load, as the Consumer Financial Protection Bureau notes in its consumer guidance.
Defaulting on either loan type damages your credit, but only a secured loan puts your pledged asset on the line. With a secured loan, the lender can seize your collateral to recover its losses. The timeline for repossession varies by lender and state, according to the Consumer Financial Protection Bureau. An unsecured default can't cost you an asset, but it can still lead to collections, added fees, and lasting credit damage.
The right loan type depends on your credit score and whether you can pledge collateral.
Choose an unsecured personal loan if you:
Have good to excellent credit: A FICO score around 670 or higher generally helps you qualify without collateral.
Want to protect your assets: You'd rather not risk losing your car, home, or savings if you can't repay.
Need funds quickly: You can accept a higher rate for faster approval.
Don't have suitable collateral: You prefer not to tie assets to your loan.
Choose a secured personal loan if you:
Have fair to poor credit: A score under about 670 may need collateral to improve your approval odds.
Want a lower interest rate: You have valuable assets like a car, savings account, or home equity to pledge.
Need to borrow a large amount: Your collateral can support a higher loan limit.
Have stable income and confidence in your ability to make payments on time.
This guide is for anyone deciding between a secured and an unsecured personal loan. Use these quick profiles to see which way to lean:
If you have fair or poor credit and an asset to pledge, a secured loan may improve your approval odds.
If you have good or excellent credit and want fast funding, an unsecured loan is often the more practical option.
If you need to borrow a large amount, collateral can support a higher limit with a secured loan.
If you'd rather protect your assets, an unsecured loan keeps your car, home, and savings out of the deal.
Applying for a secured or unsecured personal loan follows the same basic path, with one extra step to choose collateral:
Check your credit score: Know it before applying, since lenders set minimums. Improving it first can help you qualify for better rates.
Determine your loan amount: compare personal loan amounts and offers so you borrow only what you need.
Choose your collateral: For a secured loan, pick an asset and confirm your lender accepts that type (car, savings account, etc.).
Shop and compare lenders: Review APR ranges, loan amounts, and terms. Prequalification or comparison pages let you compare offers without affecting your credit score.
Submit your application: Apply online, by phone, or in person. Provide income verification, employment details, and other required documentation.
Review the loan decision: If approved, read the terms before accepting. If denied, the lender must explain why or how to find out.
Receive your funds: After you accept, funds are usually deposited within one to two business days, though some lenders offer same-day funding.
The right choice comes down to your credit, your appetite for risk, and how much you need to borrow. Secured loans tend to offer lower rates and easier approval but put an asset at risk. Unsecured loans fund faster and protect your assets, though they may cost more.
From here, it helps to read up on how secured personal loans work and gather the documents you'll need to apply. When you're ready, compare rates and terms from multiple lenders using the comparison page linked at the top of this guide.
Yes, secured loans are generally easier to qualify for because they are backed by collateral, which reduces the lender's risk.
According to Experian, you typically need a credit score of at least 580 to qualify for an unsecured personal loan. Scores around 700 tend to earn lower rates.
Yes—if you default, the lender can seize the collateral, though the exact timeline varies by lender and state. Occasional late payments usually result in fees rather than immediate seizure.
Secured loans usually cost less to borrow because the collateral lowers the lender's risk. Rates are often lower than on unsecured loans, though your actual rate depends on your credit and income.
Most personal loans are unsecured, meaning they don't require collateral. Some lenders also offer secured options backed by an asset like a savings account or vehicle.
It depends on your credit and whether you have collateral. Secured loans suit lower credit scores and larger amounts, while unsecured loans favor strong credit and faster funding.
This article draws on secondary sources rather than a proprietary BestMoney survey; none was available for this topic. To explain how secured and unsecured personal loans work, our editorial team reviewed federal consumer guidance from the Consumer Financial Protection Bureau and consumer-education resources from the credit bureau Experian. We also cross-checked lenders' own published disclosures and reporting from established personal-finance news outlets to confirm current lending practices.
Consumer Financial Protection Bureau — consumer guidance on personal loans, collateral, and default (linked above).
Experian consumer education — how secured and unsecured loans work and affect credit (linked above).
Lenders' published rates, terms, and collateral disclosures.
Brian Acton is a seasoned personal finance journalist at BestMoney.com who specializes in loans and debt consolidation. His work has appeared in The Wall Street Journal, TIME, USA Today, MarketWatch, Inc. Magazine, HuffPost, and other notable outlets.
