Secured vs Unsecured Personal Loan: What’s the Difference?

A secured personal loan is a type of installment loan where you provide an asset, like a car, a house, or a savings account, as collateral. That collateral acts as a safeguard for the lender.

If you make your payments as agreed, nothing changes: you repay the loan over a fixed term with predictable monthly payments. However, if you fall behind on payments or default on the loan, the lender has the right to seize the pledged asset to recover their losses.

Advantages of secured loans:

• Easier to qualify: Offering collateral reduces risk for the lender, which can make approval more accessible for borrowers with lower credit scores, thinner credit files, or recent financial challenges.
• Lower rates: Loans backed by collateral usually have lower annual percentage rates (APRs), which helps keep your monthly payments manageable.
• Higher loan amounts: The value of your collateral can influence how much you’re able to borrow. High‑value assets may allow access to larger loan amounts than an unsecured loan would support.

Disadvantages of secured loans:

• Risk of losing collateral: If you don't repay the loan, you could lose the asset you put up as collateral.
• Longer approval process: Secured loans typically require additional steps, such as verifying ownership and assessing the value of the collateral. Those extra checks can extend the application and funding process.

An unsecured personal loan does not require collateral. Instead, approval is based on your creditworthiness, which includes factors such as your credit score, income, and debt-to-income ratio. Examples of unsecured loans include personal loans for debt consolidation. Because the lender doesn’t have an asset to recover if you default, unsecured loans may come with higher rates and stricter qualification requirements.

Advantages of unsecured loans:

• No collateral required: You don't risk losing any of your assets if you can't repay the loan, which can feel especially important if you’re using savings, a vehicle, or your home to support other priorities.
• Faster approval: Without collateral to appraise or verify, the approval process can be quicker and less complicated. Many unsecured loan providers can approve applicants within a few business days.

Disadvantages of unsecured loans:

• Higher interest rates:  To offset the increased risk, unsecured personal loan rates tend to be higher than those offered with secured loans. This may raise both your monthly payment and the total cost of borrowing.
• Stricter qualification requirements: You'll generally need a good credit score and a verifiable income to qualify.
• Lower loan amounts: Many lenders cap unsecured loans around $50,000 to $100,000, and only a few are able to provide funding for loan amounts over $100,000¹—BHG Financial being one of those providers.

The following table highlights the core differences between collateral and non-collateral loans. 

For many, the decision between loan types is often swayed by the cost of borrowing and the individual’s risk tolerance. Secured loans reduce lender risk through collateral, which can open the door to better pricing or more flexible approval—especially if your credit profile needs support.

When to choose a secured loan

A secured loan can make sense when you’re comfortable trading some risk for potentially better terms. It’s often used by borrowers who want to strengthen approval odds or reduce borrowing costs.

• You have a valuable asset you're comfortable using as collateral.
• You have a lower credit score and need to improve your chances of approval or secure a better interest rate.
• You need a larger loan amount than you could get with an unsecured loan.
• You are comfortable with the potential risk of losing your collateral if you cannot repay the loan.
• You want to rebuild your credit history by making on-time payments on a secured loan.

When not to choose a secured loan

• You can’t afford to lose the asset you’d use as collateral (or you rely on it day-to-day).
• You need a simpler process and want to avoid collateral appraisal and extra documentation.
• You’re already a strong candidate for an unsecured loan and don’t need the tradeoff.
• Your collateral value is uncertain or hard to verify, which could slow approval or reduce the amount you can borrow.

Borrowers with unique financing needs and a stronger credit history may prefer an unsecured option.

When to choose an unsecured loan

An unsecured loan can be a good fit when you want funding without putting an asset on the line, and your credit profile supports approval.

• You do not wish to put up any collateral or risk losing an asset.
• You have a strong credit score, higher income, and a solid financial history.
• You're looking to consolidate high-interest debt, like credit card balances, into a single, predictable monthly payment that's easy to plan around.
• You need quick access to funds without the added steps of collateral appraisal.
• You prefer the flexibility of a loan that doesn't limit you to loan amounts determined by the value of the asset.

When not to choose an unsecured loan

An unsecured loan can be harder to qualify for if your credit profile is still in progress. In that case, you may need to strengthen your credit score—or consider a secured route.

• Your credit score or credit history doesn’t meet typical lender requirements.
• Your debt-to-income ratio is high and you may need time to improve it.
• You need the lowest possible rate and you’re willing to use collateral to pursue better pricing.
• You’re unsure you can qualify for the amount you need without collateral.

Many lenders cap loan amounts well below what you actually need—especially if you’re consolidating multiple debts, funding a large expense, or tackling multiple goals at once. 

BHG Financial helps solve that by offering access to large, flexible unsecured personal loans for qualified borrowers, with amounts up to $250,000¹ and terms up to 10 years^1,2. That combination can help you roll several balances into one payment and create more breathing room in your monthly budget—without pledging collateral.

When you explore options through BHG Financial, you can view a personalized loan estimate with no impact on your credit score.³

• Longer terms for lower payments. BHG Financial offers extended terms up to 10 years^1,2, which can help keep payments manageable—especially at higher loan amounts.
• Fixed rates for more predictability. Fixed-rate payments make it easier to plan month to month, with terms designed to support stable repayment over time. Plus, prime borrowers often qualify for more favorable loan terms due to their prime credit.
• Fast, supported process. BHG Financial offers premium, U.S.-based personalized service, with approval decisions in as little as 24 hours⁴ and funding in as few as five days⁴ for approved borrowers.

Ready to see what’s possible? Get a personalized loan estimate in just seconds.

Is a personal loan secured or unsecured?

Personal loans can be either secured or unsecured. Many personal loans are unsecured, meaning approval is based on your credit profile and income. Secured personal loans require collateral—like a vehicle, savings account, or other asset—which can improve approval odds or help you access different terms with a lower credit score.

Can you convert a secured loan into an unsecured loan?

In most cases, no. If you want to convert a secured loan to an unsecured loan, you will likely need to apply for a new unsecured loan and pay off the secured one. You might choose to convert if the interest rates on the new loan are substantially lower or if you want to reduce risk by removing collateral. However, approval will still be based on your creditworthiness.

Is a secured or unsecured loan easier to get approved for?

Secured loans are often easier to get approved for because the personal loan qualification requirements are more inclusive, especially if you have a lower credit score or limited credit history. However, the approval process will include asset appraisal, which could extend the timeframe. Individuals with excellent credit often find it easy to get approved for unsecured loans due to their strong financial standing and the lack of required collateral.

Are unsecured loans always more expensive than secured loans?

In terms of interest rates, unsecured loans are usually more expensive than secured loans because they pose a higher risk to lenders—there’s no collateral to recover if the borrower defaults. However, they aren’t always more expensive. Borrowers with excellent credit may qualify for competitive rates that can make unsecured loan terms more affordable. Consider the entire cost of the loan when comparing. A secured loan might have lower interest rates, but it could involve appraisal fees for the collateral or shorter repayment terms that increase your monthly payment.  

How does default affect secured and unsecured loan types?

Defaulting on either type of loan negatively impacts your credit score, but the consequences differ. With secured loans, the lender can seize the pledged collateral (e.g., car or home) to recover losses, in addition to reporting the default to credit bureaus. For unsecured loans, since there’s no collateral, lenders may pursue collections, lawsuits, or wage garnishment to recover the debt. In both cases, defaulting significantly affects your future borrowing ability and increases long-term financial strain.