Secured loans vs. unsecured loans


When you’re opening a business or in need of funds for a monthly bill, a personal loan is often a good idea. When it comes to getting a loan, there are two types of personal loan: secured and unsecured loans. To find out which kind of personal loan meets your financial requirements check out their differences below.

What is a secured loan?

A secured loan is protected by an asset or collateral of some kind. The item bought, such as a car or a home, can be used as collateral, and a lien, the legal right of a creditor to sell the collateral property in case you fail to meet the obligations of a loan contract, on such item. The lender or the finance company will hold the deed until the loan has been fully paid, with the interest and all applicable fees. Other things like stocks, bonds or personal property can be set up to secure a loan as well.


Usually, the best way to loan for a large amount of money is through a secured loan. You can’t simply loan a large sum with no assurance that you will pay back the money. That’s why people put their home or property just to guarantee that you will definitely pay for what you loaned.


While you can make a loan for new purchases, you can also use secured loans like home equity loans or home equity lines of credit. This kind of loans is based on the amount of home equity, which is just the current market value of your home minus the unsettled amount. Your home is used as a collateral, and if you’re unable to pay on time, you can lose your home.


The good thing about secured loans is that secured loans usually offer lower rates, higher borrowing limits, and longer repayment terms compared to unsecured loans. Just keep in mind that if you can’t pay for your loan, the lender has a choice to the collateral you have pledged, and they can sell it to pay off the loan.

Listed below are examples of secured loans:

  • Mortgage
  • Home equity line of credit
  • Auto loan
  • Boat loan
  • Recreational vehicle loan (jetski, boat)

What is an unsecured loan?

The first thing you should know about unsecured loans is that it’s opposite from a secured loan. Unsecured Loan includes credit card, purchases, student loan, or personal (signature) loans. People who loan for unsecured loans usually take more risk by making such a loan. Since they don’t have any property or assets to recover in case of default, so the interest rate is significantly higher. If your application to loan is not approved, you can still take a secured loan as long as you have something of value or if the purchase you make can be used as collateral.

When you apply for an unsecured loan, the bank or finance company lending you the money believes that you can repay the loan depending on your financial resources. Keep in mind that there are criteria used to check a borrower’s creditworthiness where they assess your character, capacity, capital, collateral and conditions. The collateral refers to your willingness and ability to repay the debt while the condition is about your situation as a borrower and the general economy factors.

Listed below are the examples of unsecured loans:


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

When it comes to personal loans, never loan more than what you need. While it’s tempting to loan whether it’s secured or unsecured loans, you must know what you’re getting into. If you fail to repay your loans, you’ll find yourself lending more and you end up with credit debt, or worst – lose your properties and assets.

Let GoBear help you choose the personal loan you need. Compare personal loans from various providers at GoBear now!