SAN CARLOS, CA / ACCESS Newswire / August 22, 2025 / Taking out a personal loan for the first time can be a big decision and you may have the choice between a secured and unsecured loan. Both options have benefits and risks, so understanding how they work might help you determine which suits your financial needs.

What is a secured personal loan?

A secured personal loan requires collateral-a valuable asset you own that the lender uses as security to back your loan. Collateral can be a car, home, or savings account that the lender can claim if you fail to repay the loan. Borrowers are usually not interested in losing their valuable property and are motivated to repay the loan. Because lenders have this security, they take on less risk. Auto loans, mortgages, home equity lines of credit, title loans, and even pawn loans are other types of secured loans.

Lenders often consider credit scores, income, expenses and other financial history alongside the value of the collateral when making loan decisions. The loan funds from a secured personal loan can be spent on most personal needs.

What is an unsecured personal loan?

Unsecured personal loans do not require collateral. Instead, lenders approve borrowers based on factors like creditworthiness determined by credit scores, income, expenses, and overall financial history. Without collateral, a borrower is motivated to repay the loan to protect their credit score, avoid cycles of debt and debt collectors, and bankruptcy. Lenders take on more risk with unsecured loans. Student loans are another common form of unsecured debt.

You can use unsecured personal loans for debt consolidation, home improvements, or most other personal expenses.

Pros and cons of secured and unsecured personal loans

Understanding the pros and cons of secured and unsecured loans could help you weigh your options and choose the best one for you.

Lenders pass their lower risk on to the borrower in the form of lower interest rates and higher loan amounts, compared to unsecured loans. One of the biggest advantages of secured loans is that they are easier to qualify for, even if you have limited credit history or a lower credit score. However, the main drawback is the risk of losing your collateral if you default on the loan.

Unsecured loans

Pros:

• No collateral is required, meaning personal assets remain safe

• Faster approval process compared to secured loans which require valuation of collateral, making it ideal for urgent financial needs

• Greater flexibility in how the loan can be used compared to car loans and mortgages

Cons:

• Often have higher interest rates compared to secured loans

• Often come with lower borrowing limits so the loan may not cover all financial needs

• Harder to qualify without a strong credit score, though some unsecured personal loan and school loan lenders specialize in no- or low-score borrowers

Secured loans

Pros:

• Lower interest rates, which make borrowing more affordable

• Higher borrowing limits, which allow access to larger loan amounts

• Easier to qualify for, even with a lower credit score or limited credit history

Cons:

• Requires collateral, which could be seized if you default

• Longer approval process in some cases due to asset evaluation

• Limited flexibility in how funds can be used with certain types of secured loans

Should you choose a secured or unsecured personal loan?

Choosing between a secured and unsecured personal loan depends on your financial goals, credit profile, and risk tolerance. If you need a larger loan amount and can provide collateral, a secured loan may offer better terms and lower interest rates, which can be especially helpful if you're looking to borrow a significant amount and have assets you're willing to leverage.

On the other hand, if you don't want to put any personal assets at risk or need a faster approval process by avoiding the appraisal process of your asset, an unsecured loan may be the better choice. While the interest rates may be higher, the convenience of not requiring collateral may outweigh the costs for many borrowers.

Before making a final decision, consider the following factors:

• Your credit score: A stronger credit score can make qualifying for an unsecured loan easier, while a weaker score may make a secured loan a more viable option.

• Loan purpose: If you're financing a major purchase or consolidating debt, consider which loan type aligns best with your needs.

• Repayment ability: Ensure you can manage the monthly payments, regardless of the loan type.

• Risk tolerance: If you're comfortable using an asset as collateral, a secured loan could save you money in interest over time.

Ultimately, the best choice depends on your financial situation and long-term goals. Take time to compare lenders, review loan terms carefully, and choose an option that best fits your needs.

CONTACT:

Sonakshi Murze
Manager
sonakshi.murze@iquanti.com

SOURCE: Oportun