What is the Difference Between Secured and Unsecured Loans?

What is the Difference Between Secured and Unsecured Loans?

Personal loans can either be secured or unsecured. The difference between secured and un-secured loans can be explored in the definition, interest rate, credit requirements, availability and the loan amount. To start with, let’s define secured loans.

What are secured loans?

Secured loans are simply personal loans that are backed (secured) using an asset i.e. some form of property, a car, etc. Since assets back secured loans, lenders have the right to sell the asset in question if a borrower is unable to repay their secured loan. Although most lenders usually give borrowers a chance to meet their repayment obligations before they decide to sell the asset in question, they aren’t legally bound to do so. A lender can sell your security without going to court if you violate the terms of your secured loan. Mortgage loans are perfect examples of secured loans. In such a case, the home/property you purchase is the collateral.

What are unsecured loans?

Unsecured loans are personal loans which don’t require collateral. You don’t need to have a house, a car or any other form of asset to get an unsecured loan. As a result, you don’t stand to lose your property or asset in case you default on the loan. There are however dire consequences of defaulting on unsecured loans. For instance, your lender can sue you. In such instances, there are high chances of losing any asset you own. Defaulting on an unsecured loan (and any loan for that matter) also hurts your credit rating making it ver hard and more costly to get loans in the future. A perfect example of an unsecured loan is a payday loan.
Other significant differences

There are other notable differences between secured and unsecured loans apart for the fact that secured loans require collateral and unsecured loans don’t require collateral. These include;

Interest rate

Secured loans tend to have better interest rate charges than unsecured loans because they are less risky. Since you provide collateral before getting a secured loan, the loan is less risky for the lender. It’s worth noting that the risk factor of a loan is one of the most important considerations when determining the interest a borrower is supposed to pay. Since lenders are less worried about you repaying a secured loan, the interest rate charged is less. Unsecured loans expose lenders to unnecessary risks including other problems i.e. legal fees when pursuing defaulters. This explains why the interest on unsecured loans is usually higher.

Credit requirements

The difference between secured and unsecured loans can also be explored in the credit requirements. For instance, a borrower’s credit history is always a factor when issuing unsecured loans with the exception of payday loans. Unsecured loans are usually given to borrowers with a good credit history i.e. borrowers who have shown a good/impressive ability to repay their loans in the past. Payday loans are an exception because they are usually available to individuals with bad credit. You must, however, have a job or regular source of income to qualify.

For secured loans, however, you don’t need to meet strict credit requirements since you provide security for the loan.


In regards to availability, unsecured loans are more available than secured loans. Payday loans are widely available than any other types of loans in the UK. It is possible to get unsecured loans easily online or offline through the countless UK loan lenders available today.

Secured loans are less available since they aren’t sought after by many people. Most people don’t have the collateral to secure loans. The few that have collateral/assets usually don’t need loans.

Loan amount

Secured loans tend to be available in larger amounts compared to unsecured loans. Secured loans are specifically suited for individuals with substantial cash needs.


The above information discusses the main differences between secured and unsecured loans. After reading the above information, you shouldn’t have a problem deciding whether to take a secured or unsecured loan. For instance, secured loans are best suited for you if you have collateral. On the other hand, an unsecured loan such as short term loan will be perfect for you if you need cash immediately, but you have a bad credit score.

Mark Scott

Is the Company Director of Swift Money Limited. He oversees all day to day operations of the company and actively participates in providing information regarding the payday/short term loan industry.