Home News Secured Personal Loans vs. Unsecured Personal Loans: Know the Difference

Secured Personal Loans vs. Unsecured Personal Loans: Know the Difference

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You can avail Instant Loan from a bank, a credit union or an online lender. The application process is also fairly easy and hassle-free. However, there are a few technical jargons you must know when applying for a personal loan. Let us see what secured and unsecured loans are.

Secured Loan

Every financial institution or entity provides a personal loan. A borrower applies for a secured personal loan by securing a promise to pay back. This security is what the lender calls as ‘collateral’. The lender will assess the value of the collateral and offer a loan amount accordingly. However, if the borrower fails to repay the loan amount, the lender can repossess the ownership of the collateral at any point. For instance, let’s say you have secured a loan for renovating your house by using your car as the collateral. Over a period, if you are unable to repay the amount, then the lender can take the car into possession. Usually, people who have low credit scores seek secured loans.

A personal loan can be availed for multiple purposes – expanding the business, purchasing a four-wheeler or for home renovation services. You should know that secured loans often have a high interest rate. Also, you must read the document very carefully before signing the final document.

Unsecured Loan

Unsecured loan, on the other hand, is different from a secured loan. In this scenario, the lender does not provide any collateral against his loan amount due to which unsecured loans are very difficult to obtain. This type of loans requires a thorough credit check, as the acceptance of the application largely depends on the credit score. The lender must have the trust and be able to foresee your capacity to pay back. The interest rates are also dependent on the credit score. Here are a few factors that affect the credit score:

  • Income
  • Repayment of earlier debts without any defaults
  • Current finances

If you have an impressive credit score, then you can apply for a lower interest rate. The best example of an unsecured loan is the student loan. This is often the most sought-after loan.

Unsecured loans are more popular than secured loans but very difficult to get approved. The interest rates for unsecured loans are also very high. In order to apply for an unsecured loan, you need to have good financial health. In addition, you will need a consigner to help you with a good lender for approval of your loan application.


The decision to apply for a secured or an unsecured loan depends on the credit score, interest rate, income and ability to pay back. You must assess all the aspects thoroughly to arrive at the best decision because even a slight wrong analysis can bring a lot of trouble in the future.  Therefore, it is advisable to take your decision wisely and only after a long-term financial planning.

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