Which is Better: Secured vs. Unsecured Loans in 2024

Need a loan but unsure about secured vs. unsecured options? Discover the key differences to make an informed choice
secured vs. unsecured loans
J. Michaels
Author: J. Michaels
secured vs. unsecured loans

Do you understand the difference between secured vs. unsecured loans?

Did you know that choosing between these two could be the difference between saving money and risking your assets?

You’re not alone—most Americans are unaware of the fundamental differences between secured and unsecured loans.

This article cuts through the jargon, breaking down each loan type’s features, risks, and benefits, so you can confidently choose the best borrowing strategy for your specific needs.

Key Takeaways

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The Basics of Secured vs. Unsecured Loans

Basics of Secured vs. Unsecured Loans

When you need to borrow money, you have two main choices:

secured loans and unsecured loans

But what’s the difference?

Simply put, it all comes down to whether or not you offer something valuable, like your home or car, as a guarantee to the lender, otherwise known as collateral.

In the situation where a loan is secured, you basically say, “Hey, I’ll give you extra assurance by offering my car as backup if things go wrong.”

This usually makes the lender feel more comfortable and might get you a better deal on interest rates.

In the case that a loan is unsecured, you don’t offer any ‘backup’ assets. The lender decides if they’ll give you money based mainly on your past history with credit and your income.

Both types have their pros and cons, and the right choice depends on your situation, what you’re buying, and what kind of financial risk you’re prepared to take.

A Closer Look at Secured Loans

Okay, so you’re thinking about a secured loan.

What does that really mean?

Well, in simple terms, you’re promising the lender something valuable you own, like your house or car, as a “just in case” measure.

If for some reason you can’t make your payments, the lender could take that asset to cover their loss.

Types of Secured Loans

The Pros

The Cons

What You Need to Know About Unsecured Loans

So, what if you don’t want to put your car or home on the line?

Then you can opt for a loan that is not secured.

These loans don’t require you to offer up any assets as collateral. Instead, lenders look at other factors like your credit score and income to decide if you’re a good risk.

Types of Unsecured Loans

The Pros

The Cons

How to Choose Between Secured and Unsecured Loans

How to Choose Between Secured and Unsecured Loans

When weighing your options between the two different types of loans, it’s crucial to consider your specific circumstances.

Here are some scenarios where one type might be more suitable than the other:

When to Opt for a Secured Loan

When to Consider an Unsecured Loan

By evaluating your financial situation and needs, you can make an educated choice about which loan type will serve you best.

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Impact on Credit Score


Lenders will perform a hard credit check, the will temporarily affect your score. Keep this in mind when you are applying for these loans, especially if you need to keep your credit score high for an upcoming event.

On the bright side, timely payments will help you build a good credit history.


Usually, these types of loans require a higher credit score for approval. But don’t worry, there are still plenty of lenders available for people with bad credit scores.

However, similar to the secured alternative, a hard credit inquiry will temporarily lower your score.

The Long-term Perspective

Both loan types can positively or negatively impact your credit score depending on how responsibly you manage repayments.

Consistent, timely payments will generally help improve your score regardless of the loan type. Just make sure that you don’t need a higher credit score soon after you apply for the loan.

Be responsible in your application timing and be responsible with your payments to make the most our of your loan.

Making Your Choice

When it comes to borrowing money, understanding your options is crucial.

Getting a loan that is secured might be your go-to for property purchases or if you have less-than-stellar credit.

On the other hand, getting a loan that is unsecured offers flexibility but often at the cost of higher interest rates.

Either way, both loan types can impact your credit score, so choose wisely and manage your repayments diligently.

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