Secured vs. Unsecured Personal Loans
5 Min Read | Last updated: September 30, 2025
This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.
Personal loans can be secured or unsecured. Secured loans require collateral, and unsecured loans do not. See which loan option is right for you.
At-A-Glance
- Personal loans are a type of debt.
- Choosing between a secured or unsecured personal loan largely depends on your credit score and available assets.
- Interest rates, borrowing caps, terms, and approvals vary by type of loan.
People take out personal loans for various reasons – whether to consolidate debt, make a large purchase, or pay for some other important transaction.
Still, there’s some homework you might consider doing before you apply for a personal loan. What can you do to improve your chance of qualifying? How can you get the most favorable terms? One thing that can make a big difference is whether you choose a secured personal loan or an unsecured personal loan.
Types of Personal Loans: Secured and Unsecured
Personal loans are all-purpose loans from banks, credit unions, and fintechs that you pay back in regular monthly installments.1 They are usually categorized separately from more specific loan types, such as mortgages or student loans.
Personal loans represent the fastest-growing debt category in the U.S., according to the Experian credit reporting agency. Overall, U.S. personal loan balances grew 9.2% year-over-year in the third quarter of 2023 to $567.5 billion. Experian’s research also shows more people taking out personal loans in recent years. In fact, there was a 7% jump in the number of people with at least one personal loan between 2022 and 2023.2
Personal loans come in two different types:3
- Secured. A secured personal loan requires you to commit assets like your home or savings as collateral against non-payment. If you end up unable to make your loan payments, your assets could be seized and resold by the lender to recoup its funds.
- Unsecured. An unsecured personal loan relies on your credit history to mitigate the lender’s risk. If you can’t pay, a lender’s recourse would be to send a collection agency for the funds or to sue you, both of which could also damage your credit.
Most personal loans are unsecured. Borrowers’ choices between the two often hinge on their credit score and available assets. For someone with a poor credit score, putting up collateral might help them qualify for a loan they otherwise would not get.4 But you can only qualify for a secured loan if you have sufficient assets. Besides your home or savings, including investments and certificates of deposit (CDs), those assets could include your car of previous metals.5
Secured and Unsecured Personal Loan Interest Rates
Secured personal loans are less risky for lenders, so they usually have lower interest rates and are easier to get approved. Unsecured personal loans put borrowers at less risk, since their home, car, or other valuables are not at stake.5
Interest rates and lengths of personal loans vary significantly, potentially ranging from about 6% to 36%. Secured personal loans may come in at the lower end of the interest rate scale.6 In Q4 of 2024, the Federal Reserve reported a 12.32% average interest rate on 24-month personal loans.7
Credit Score Affects Secured vs Unsecured Loan Choice
Your credit score is likely to play an important role in your choice between a secured or unsecured loan. A borrower with a low credit score might be declined for an unsecured personal loan and then turn instead to a secured personal loan, with a greater chance of qualifying. Secured loans sometimes offer higher borrowing limits.8
How People Put Personal Loans to Use
There are many ways that people use personal loans, including:
- Large purchases
- Debt consolidation
- Home improvement
- Unexpected expenses
A home equity line of credit (HELOC) may be used instead of a secured personal loan for the purposes on this list. HELOCs use your home’s equity as collateral and may have variable interest rates. However, a HELOC is very different from a personal loan in that it provides you with access to a line of credit that you can draw from – or not – over a period of time.9
| Key Differences Between Secured & Unsecured Personal Loans | |
| Secured | Unsecured |
| Lower interest rates | Higher interest rates |
| Requires collateral (e.g., your house) | No collateral required |
| Longer duration loans available | Shorter loan terms |
| Approval easier with low credit score | Need higher credit score for approval |
| Risk of losing collateral for defaulting | No risk of losing assets |
The Takeaway
Amid an overall growth spurt in personal loans, consumers have two primary choices: secured personal loans and unsecured personal loans. The choice often comes down to your credit score and available assets. At stake are differences in the ease of access, cost, and terms of the loan you are seeking.
1 “What Is a Personal Loan?,” Experian
2 “Average Personal Loan Balance Grows 6.3% in 2023,” Experian
3 “Consumer Loans & Credit Cards,” National Credit Union Administration
4 “What Credit Score Is Needed for a Personal Loan?,” Experian
5 “What Is a Secured Loan?,” Experian
6 “What's a Good Interest Rate on a Personal Loan?,” Experian
7 “Consumer Credit - G.19,” Federal Reserve System
8 “What Are Secured Loans and How Do They Work?,” Equifax
9 “Home Equity Loans and Home Equity Lines of Credit,” Federal Trade Commission
Karen Lynch is a journalist who has covered global business, technology, finance, and related public policy issues for more than 30 years.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
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