What is a Secured Personal Loan vs Unsecured?

November 14, 2025

When you’re exploring personal borrowing options, one of the most important distinctions to understand is the difference between secured vs unsecured debt. These differences impact your interest rates, loan amounts, credit requirements, and financial risk. A secured personal loan requires collateral, while an unsecured personal loan does not. Understanding how secured vs unsecured personal loans work can help you choose the loan type that best fits your financial situation.

Which Best Describes the Difference Between Secured and Unsecured Loans?

The key difference between a secured personal loan and an unsecured personal loan is whether collateral is required. A secured loan is backed by an asset—such as a car, home, or savings account—which the lender may claim if repayment is not made. An unsecured personal loan does not require collateral but may come with higher interest rates and stricter underwriting due to increased lender risk.

5 Key Differences Between Secured vs Unsecured Personal Loans

Understanding these distinctions can help you compare secured vs unsecured personal loans and choose the best option for your financial goals.

1. Collateral Requirement

A secured personal loan requires the borrower to pledge an asset such as a vehicle, property, or savings account. If you default, the lender may seize the collateral.

An unsecured personal loan does not require collateral, though borrowers may face legal action or credit reporting consequences for missed payments.

At First Hope Bank, we offer Deposit Secured Loans that allow you to use your existing savings account or Certificate of Deposit as collateral. This lets you continue earning interest on your money while borrowing responsibly.

2. Interest Rates

Since a secured personal loan reduces lender risk through collateral, it typically offers lower interest rates.
An unsecured personal loan tends to carry higher rates.

First Hope Bank’s Deposit Secured Loans provide competitive rates, while our Life Happens Loan offers an affordable unsecured borrowing alternative for unexpected expenses.

3. Loan Amount

Lenders may offer higher borrowing limits on a secured personal loan because an asset backs the loan.
Unsecured personal loans, without collateral, may come with smaller maximum loan amounts.

Our Life Happens Loan allows borrowers to access $2,500 to $20,000 with terms between 24 and 84 months.

4. Credit Score Requirements

Secured personal loans may be easier to obtain for borrowers with lower credit scores, as the collateral reduces risk.

Unsecured personal loans, however, typically require stronger credit profiles because they rely solely on the borrower’s creditworthiness.

A FICO score of 670 or higher is generally considered good, but lender standards vary.

5. Risk to the Borrower

With a secured personal loan, the borrower risks losing the collateral if they default.

With an unsecured personal loan, assets aren’t at risk, but missed payments may result in credit score damage, collection efforts, or legal action.

Pros and Cons of Secured Personal Loans

Pros

• Lower interest rates
• Higher loan amounts
• Easier approval for lower credit scores
• Flexible repayment terms

Cons

• Risk of losing collateral
• Longer approval due to collateral evaluation
• Possible appraisal or other loan fees
• Greater financial difficulty if collateral is seized

Pros and Cons of Unsecured Personal Loans

Pros

• No collateral required
• Faster application and funding
• Straightforward terms
• No risk of losing assets

Cons

• Higher interest rates
• Stricter credit requirements
• Smaller borrowing limits
• Potential for rapid debt accumulation if mismanaged

What’s Better: A Secured or Unsecured Personal Loan?

Choosing between a secured personal loan and an unsecured personal loan depends on your financial goals, credit profile, and comfort level with risk.

To explore all lending options, visit our Personal Loans Overview page.

Whether you want the lower interest rates of a secured loan or the no-collateral simplicity of an unsecured personal loan, First Hope Bank can help you determine the right solution. Our experienced team is ready to guide you through the process.

Schedule an appointment today to find the personal loan that best fits your needs.

FAQ: Secured vs Unsecured Debt & Personal Loans

1. What is the main difference between secured vs unsecured debt?

Secured debt is backed by collateral, whereas unsecured debt is not. This affects your loan’s cost, approval requirements, and risk level.

2. What qualifies as a secured personal loan?

A secured personal loan uses an asset—like a car, home, or savings account—to guarantee repayment.

3. What qualifies as an unsecured personal loan?

An unsecured personal loan does not require collateral and is approved based on your credit score, income, and financial history.

4. Is it easier to get approved for a secured personal loan?

Often yes. Collateral lowers lender risk, making approval easier for some borrowers.

5. Do secured vs unsecured personal loans affect interest rates?

Yes. Secured loans typically offer lower rates, while unsecured loans may charge higher rates due to greater lender risk.

6. Which loan type is safest for borrowers?

Unsecured loans are safer in terms of asset protection—no collateral means no risk of losing property. Secured loans, however, often cost less.