Secured vs. Unsecured Loans: Which Is Right for You?

If you’ve shopped around for a loan, you may have come across secured and unsecured loans. It’s important to understand the differences between the two as one loan may be better suited for your financial situation and needs. 

Here’s what you need to understand before making your decision.

Secured vs. Unsecured loans at a glance

Feature	Secured Loan	Unsecured Loan
Collateral required	Yes (home, car, savings)	No
Typical APR range	3%–10% (mortgages, HELOCs)	8%–36% (personal loans)
Common loan amounts	Up to $500,000+ (mortgages)	$1,000–$75,000
Typical terms	5–30 years	1–7 years
Funding speed	Days to weeks (real estate); 1–3 days (auto)	1–3 business days
Risk if you default	Lender can seize collateral; credit damage; possible collections	Credit damage; possible collections

What is an unsecured loan?

An unsecured loan doesn’t require collateral. You qualify based on factors like your credit score, income, and debt-to-income ratio.

Because there’s no asset backing the loan, lenders take on more risk and they price that into the rate. Lending platforms like Upstart offer unsecured loans⁴, such as personal loans for debt consolidation or medical expenses, which don’t require borrowers to put up collateral. Upstart’s model weighs factors beyond credit score, including income and employment history, alongside traditional credit data.

If you default, the lender can’t seize property, but they can report the missed payments to the credit bureaus and eventually send the debt to collections. Either outcome can significantly damage your credit.

Pros of unsecured loan

• No collateral required, so your home and car aren’t at risk
• Faster funding in many cases: some lenders disburse funds within one to two business days
• Flexible use: debt consolidation, medical bills, home repairs, and more

Cons of unsecured loan

• Higher APRs than secured loans, especially with fair credit
• Lower loan limits: most unsecured personal loans cap around $50,000-$75,000
• Approval is harder without strong credit or income documentation

What is a personal loan?

Personal loans are the most common type of unsecured loan. Loan amounts typically range from $1,000 to $75,000 or more, depending on the lender, your credit score, and your state of residence. Repayment terms usually run one to seven years.

Lending platforms like Upstart offer personal loans for purposes such as home improvement or emergency expenses, which borrowers can access without pledging assets as security.

Other types of unsecured loans include:

• Personal lines of credit 
• Credit cards
• Student loans
• Some home improvement loans

What is a secured loan?

A secured loan requires you to pledge an asset, your home, car, or savings, as collateral. If you stop making payments, the lender can seize that asset to recover their losses.

That extra security lets lenders take on less risk, which usually translates to lower rates. Mortgage rates, for example, are well below the average unsecured personal loan rate.

Common forms of collateral include:

• Home, condo, or other real estate
• Bank accounts (checking, savings, CDs, money market)
• Vehicles
• Stocks or bonds
• Vehicles
• Stocks or bonds

Pros and cons of secured loan

Pros:

• Lower APRs, often significantly below unsecured rates
• Higher borrowing limits: mortgages can exceed $500,000; HELOCs up to 85% of your CLTV(Combined Loan-to-Value)
• Easier to qualify with moderate credit if you have a strong asset to pledge

Cons:

• You risk losing your collateral if you default
• Approval process is often slower: appraisals and title checks add days or weeks
• Some secured loans (like mortgages) carry closing costs of 2%-5% of the loan amount

Common secured loan types include:

• Mortgage
• Home Equity Line of Credit (HELOC)
• Vehicle loans
• Secured credit cards

How to choose between a secured and unsecured loan

The right loan type comes down to what you’re borrowing for, how much risk you’re comfortable with, and what you qualify for.

• Choose a secured loan if: you’re borrowing a large amount, you have an asset to pledge, and your primary goal is the lowest possible rate
• Choose an unsecured loan if: you don’t want to put assets at risk, you need funds quickly, or you’re borrowing a smaller amount (under $25,000)
• Your credit is thin or below 620? A secured loan may be your best path to approval, since the collateral compensates for credit risk
• You value speed?Unsecured personal loans often fund in one to three business days; secured loans tied to real estate can take two to four weeks

No matter which you choose, confirm whether the lender charges an early repayment fee before you sign. A longer term means lower monthly payments, but you’ll pay more in total interest over time.

Key Terms to Know

• Collateral: An asset you pledge to a lender to back a loan. If you don’t repay, the lender can take it. Common examples: your home (mortgage), your car (auto loan).
• APR (Annual Percentage Rate): The true annual cost of the loan, including the interest rate and most fees. Compare APRs across lenders, not just interest rates.
• Soft vs. hard inquiry: A soft inquiry (like checking your rate) doesn’t affect your credit score. A hard inquiry, triggered when a lender pulls your full credit report to make a lending decision — typically drops your score by two to five points temporarily.
• Default: Failing to make loan payments as agreed. The consequences differ by loan type: on unsecured loans, the debt may go to collections and your credit score takes a serious hit; on secured loans, the lender may also seize collateral.
• Lien: A legal claim a lender places on collateral (like a home or car) until the loan is paid in full. A lien gives them the right to seize the asset if you default.

Frequently Asked Questions

Are personal loans secured or unsecured?

Personal loans are typically unsecured. You don’t need to put up a home, car, or other asset to qualify, and lenders base approval on factors including your credit score, income, and debt-to-income ratio instead.

Do unsecured loans have higher APRs than secured loans?

Yes, typically. Because there’s no collateral backing the loan, lenders charge more to offset their risk. 

What happens if I default on a secured loan?

The debt may go to collections and your credit score takes a serious hit. The lender may also seize whatever collateral you pledged. On a mortgage, that means foreclosure; on an auto loan, repossession. 

Is a HELOC secured or unsecured?

A HELOC (Home Equity Line of Credit) is a secured loan. Your home serves as collateral, which is why HELOCs typically offer lower rates than unsecured options. 

Will checking my rate hurt my credit score?

No. Most lenders, including online lending platforms, use a soft inquiry to show you rate options, which doesn’t affect your score at all. A hard inquiry only happens if you formally apply and the lender pulls your full credit file.