Different Types of Loans: Secured vs Unsecured, Which Way to Go?

By David S. Chang

The value of consumer loans has skyrocketed since the 1940s to over 1 trillion dollars. With the advent of the credit card, the use of technology, and easy money policies, it has become significantly easier to obtain credit. Before you do, it’s essential to know the difference between a secured vs unsecured loan. You want to ensure you get the right one for your situation.

Unsecured Loans

Unsecured loans are loans that are not backed by any collateral. Lenders will lend an unsecured loan based on your credit score, income level, and ability to repay it. Since it is “unsecured”, these type of loans typically have higher interest rates.


You Don’t Need to Offer Any Collateral. Unsecured loans trade a lender’s money for your word that you’re going to pay them back plus interest. Nothing else is required of you to receive an unsecured loan which contrasts secured loans which we will talk about momentarily.

Speed. Unsecured loans are uncomplicated, and as such, if your application is approved, lenders can wire you money immediately. If you need cash right away, this is a great benefit.


Can Be Difficult to Get. Since nothing secures an unsecured loan except your word, lenders will want to make sure that your word is good by checking your credit score. If you have bad credit, unsecured loans could be hard to get.

Your Credit Score Can Be Significantly Impacted. Any late payment can impact your credit score for up to seven years. So it is important that you don’t miss any payments.

Secured Loans

Secured loans are loans backed by an asset as collateral. It could be cash in a bank account, real estate, a car, or other property. If you fail to repay the loan, the financial institution will take the secured property as collateral.


They’re Easy to Get. If you have a valuable piece of property (car, necklace, ring, game console, etc.), you can borrow against that item’s value via a secured loan. Your credit score doesn’t matter. As long as you own something of value, you can get a loan up to the value of the property relatively easily.

Loan Amounts May Be Higher. A lot of people that get approved for small unsecured loans find that they can borrow more money via a secured loan. It depends on how valuable the property you have is to back your loan.


Collateral Is Required. Your personal property insures secured loans. If you don’t have any and you don’t have a good credit score and job, then you won’t be able to get a secured or unsecured loan.

You Can Lose that Collateral. If you don’t pay back your loan per its requirements, lenders will take possession of your property as payment.

Which One is Right for You?

It is based on your unique situation. Weigh the secured vs unsecured loan information and look at it in the context of your needs. Then choose the option that works best for you.

David S. Chang

Award-Winning Entrepreneur, Wealth Manager and CEO | Chief Editor, Author, Keynote Speaker, Consultant ArtofThinkingSmart.com | Political Consultant | Army Officer National Guard | Living To Fulfill Needs, Solve Problems, and Live Passionately!


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