Secured Vs Unsecured Loans – Which is Best?

When it comes to getting a loan, you have two options: secured and unsecured. But if you don’t know enough about these types of loans, you may end up making the wrong decision for your financial future. To learn more about secured loans versus unsecured loans, continue reading. The information below will help you determine which type of loan is best for your needs.

What Are Secured Loans?

Examples of secured loans include a home equity line of credit, a mortgage, a boat loan, a recreational vehicle loan, or an auto loan. These loans are backed by an asset as a form of collateral. So if you take out a loan to buy a car or a house, that item itself can be considered collateral, and if you can’t repay the loan in time, a lien can be placed on your property. But other items, including bonds, personal property, and stocks, can also be used to get a secured loan. And until the loan has been repaid in full, you won’t have the title or deed to the property, as the bank or financial institution that gave you the loan will have it instead.


If you need a large sum of money, a secured loan is the way to go. These loans provide higher borrowing limits, lower interest rates, and a longer period of time for repaying them when compared to unsecured options.

In addition to making big purchases, you can also get a secured loan in the form of a home equity line of credit or home equity loan. These loans will be based upon your property’s equity, or the current market value minus how much you still owe. But in these cases, your home is still considered collateral, and it can still be taken away if you’re unable to pay the loan off in full and on time.

What Are Unsecured Loans?

Unsecured loans are basically the opposite of a secured loan. Examples of an unsecured loan include personal (signature) loans, student loans, credit cards, home improvement loans, and a personal line of credit.

When a lender provides someone with this type of loan, they’re taking a greater risk because there aren’t any assets or property to recover if the person defaults. As a result, interest rates are much higher on unsecured loans than on secured loans.


So if you were to apply for an unsecured loan, the lender basically has faith in your ability to repay the whole loan, based upon their analysis of your finances. You’ll be checked and judged thoroughly for everything from capital and collateral, to conditions, capacity, and character in order to properly assess your worthiness. Capacity, character, collateral, and capital all refer to your ability and willingness to repay the loan. Conditions, on the other hand, include your situation and economic factors.

Making the Right Choice

Now that you know the differences between secured and unsecured loans, you can choose the option that suits you best. Check out to compare loans and to get a better idea of the type of loan you qualify for.