Secured vs. Unsecured Loans: What Are the Critical Differences?

If you have been looking for a loan, you must have heard about secured and unsecured loans. Well, all loans are into two types, which are the secured and unsecured loans.

Before deciding what kind of loan you will take, you should first thoroughly understand the meaning and difference between the two. Knowing about the loan terms that you apply for is good since you will know what binds you.

The differences between secured and unsecured loans

1. Meaning

Secured loans are the loans that you provide collateral to the lender to approve your loan. You can give your land title deed, a vehicle logbook, or other proof of ownership.
However, you don’t give the lender any authority over any of your properties with unsecured loans. In most cases, lenders would require you to have a steady flow of income, and you’ll be eligible for the loans.

3. The APRs

Secured loans have relatively lower Annual Percentage Rates (APRs) because of the assets you provide.
In contrast, unsecured loans have very high APRs because you provide nothing other than the trust that you can repay the loan.

3. Limits

Secured loans lenders give higher limits to the borrowers. Many times, secured loan lenders provide you a loan according to the worthiness of your collateral.
On the other hand, unsecured loans don’t have high limits. This is because the lenders don’t have complete trust in the borrowers, giving them lower rates.

4. Debt Management

Secured loan lenders do not risk losing their money once the borrower fails to repay the loan. Instead, they will possess the debt management and asset on collateral to repay themselves. The borrower, on the other hand, loses his property if they fail to pay.

With unsecured loans, the lender has the risk of losing all their money if the borrower defaults. Services such as Reform Debt Solutions can be helpful in providing best debt management tips and services to people living in the UK and that is because the lenders only use employment to hope that the borrower will repay the loan. Therefore, if the borrower loses their job, the lender will have no place to run to in case of default.

However, the borrowers stand to ruin their credit history if they default on an unsecured loan. And that will limit them from getting loans in the future.

Accounting for a credit report


Secured loans are mostly long-term, and the borrower repays in small installments until they finish the total amount. This specific feature makes the secured loans more suitable when you need to achieve financial goals.

In contrast, unsecured loans are short-term. For instance, borrowers repay payday loans within two weeks— which are an example of unsecured loans. When the borrower doesn’t pay the loan within the agreed period, the lender doubles the interest.

Credit checks

With secured loans, the lenders do not run credit checks since you provide collateral. Instead, they will give you a loan depending on the worthiness of your asset.

In contrast, some lenders of unsecured loans may run credit checks to see your credit behavior. However, some lenders of unsecured loans, like payday lenders, do not run credit checks. They only depend on the transactions on your checking account. If you have a steady flow of income, then you can quickly get a payday loan—regardless of your credit.


The examples of secured loans are:

  • Mortgage. You get a mortgage to buy a home, and you pay back in installments. If you fail to repay, the lender repossesses the house.
  • Auto loan. You get an auto loan to purchase a car, either a business vehicle or a personal car.

Examples of unsecured loans:

  • Payday loans. These are short-term loans that you repay during the next paycheck.
  • Student loans. They are loans issued to students.
  • Personal loans. These are loans that you apply to use in personal expenses like emergencies or home renovations.


Always ask your lender what kind of loan they will give you, and you will be able to weigh it out before you decide.

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