Secured vs. Unsecured Loans: Pros and Cons

Two common types of loans are secured loans and unsecured loans. The contrast between them resides in collateral, which represents a valuable asset provided in exchange for funding. Secured loans require collateral, such as a vehicle or home. If you can't pay off a secured loan, your lender keeps the collateral to cover the amount. 

Unsecured loans, on the other hand, don't require collateral. Instead, eligibility relies on factors like your credit score, income, and how much money you have in your bank account. Since unsecured loans are riskier for the lender, they often come with higher interest rates. 

Many common loan types are either secured or unsecured. A mortgage, home equity line of credit, and car title loan are examples of secured loans. Unsecured loans can include Payday Loans, student loans, and Lines of Credit.

list of secured vs unsecured loans

What is a secured loan? 

Secured loans are a type of financing backed by collateral, such as a house, car, or a valuable piece of jewelry. Common types of secured loans are mortgages, home equity loans, and title loans. 

With a secured loan, the lender holds an interest in the title or deed until the loan is fully repaid. If the borrower cannot repay the secured loan, the lender can take possession of the collateral and sell it to pay off the loan. 

Examples of secured loans 

  • Title loan: A title loan is a secured loan that allows you to use your vehicle as collateral. You can use your car, truck, van, boat, or recreational vehicle as collateral as long as you own it free and clear and have the title in hand. 
  • Secured line of credit: This type of secured loan is an approved amount of funds that you can draw from whenever you need to cover an expense. A secured line of credit is guaranteed by collateral such as a house or car. 
  • Mortgage: A mortgage is a secured home loan that uses the house and property being financed as collateral. Over a set amount of time, you’ll pay off the loan amount plus interest, taxes, and insurance. 
  • Pawn shop loan: Pawn shops require you to provide valuable items like jewelry, electronics, or other possessions as collateral in exchange for a short-term loan. If you don’t repay the loan within the agreed-upon time frame, the pawned items may be forfeited to the pawn shop. 

Pros of secured loans 

While secured loans require collateral, they have several advantages over unsecured options, including: 

  • Potentially lower interest rates and fewer fees since there's less risk to the lender. 
  • The potential to receive larger loan amounts that are based on the value of your collateral. 
  • You don't need a good credit score since you're offering something as collateral. 

Cons of secured loans 

The biggest disadvantage of a secured loan is that you lose your collateral item if you fail to repay your loan. Depending on the type of secured loan you’ve borrowed, that could mean risking a sentimental heirloom, your only means of transportation, or even your home. 

When you should consider a secured loan 

Secured loan amounts are based on the value of your collateral, which may give you access to a larger amount of funds than you’d be eligible for with an unsecured loan. 

You might also consider a secured loan if you have assets you’re willing to offer as collateral. 

What is an unsecured loan? 

Unsecured loans are loans that are not backed by collateral. Common types of unsecured loans are Payday Loans, Installment Loans, and personal Lines of Credit. 

If a borrower fails to repay an unsecured loan, the lender can’t take the borrower’s assets, but they can transfer the account to collections to help set up payment arrangements. In extreme cases, the lender may choose to take legal action. 

Examples of unsecured loans 

  • Payday Loan: A Payday Loan is a short-term, unsecured loan that you pay off when you get your next paycheck. Advance America offers fast Payday Loans, and you don’t need good credit to qualify. 
  • Credit card: A credit card is an unsecured loan that allows you to carry a balance and pay it off over time with interest. Typically, you must pay your credit card bill once a month, whether you pay off your balance in full or make a minimum payment. 
  • Personal Line of Credit: With a personal Line of Credit, you can access money whenever you need it. Advance America can give you instant access to a Line of Credit that you can pay back over time or all at once. 

Pros of unsecured loans 

Secured loans offer several advantages over unsecured options: 

  • You don't need collateral, which means you don’t risk losing something valuable like a car or business. 
  • With enough research, you can find secured loans with competitive rates and terms. 
  • The approval process is faster for unsecured loans; with a secured loan, an appraiser must assess the collateral’s value, which takes more time. 

Cons of unsecured loans 

While unsecured loans have many advantages, they also have some disadvantages: 

  • Because the lender is taking on more risk with an unsecured loan, they may charge higher interest rates and fees. 
  • In addition to higher rates and fees, more risk to the lender means they may want their money back faster, which could mean a shorter repayment window. 
  • Unsecured loans typically have lower borrowing limits than secured loans. 
  • You may need a good credit score to qualify for an unsecured loan. 

Unsecured loans may be less risky for the borrower. More risk for the lender, however, can result in lower borrowing limits, higher interest rates, and higher credit scores needed to apply. 

When you should consider an unsecured loan 

You might consider an unsecured loan if you need to borrow a smaller amount of money quickly. You might also consider an unsecured loan if you don’t have a car or house to use as collateral.

Differences between secured and unsecured loans 

Here are some of the main differences between secured and unsecured personal loans: 


Lenders offering secured loans require you to provide an asset as collateral to secure the loan. With an unsecured loan, you don’t need to put up property that you own as collateral. 

Interest rates 

Unsecured loans typically come with higher interest rates than secured loans. This is because unsecured loans aren’t protected by collateral, so lenders often view these loans as riskier. 

Borrowing limits 

Since secured loans involve using an asset as collateral, these loans can offer higher borrowing limits than unsecured loans, giving you the potential to receive more money. 

Can I qualify for a secured loan or an unsecured loan? 

Since secured loans are secured by collateral, they are less risky to the lender and can sometimes be easier to qualify for than unsecured loans. But luckily, there are plenty of secured or unsecured loans for borrowers with any credit score. 

Many lenders will consider factors in addition to your credit, like income, employment history, and current debts. This means you could still qualify for both secured and unsecured loans with poor or fair credit. 

Should I get a secured or unsecured loan? 

The right loan for you depends on your financial situation and what loan would best fit your needs. Consider the features that each type of secured and unsecured loan offers and how much money would help your financial situation. If you need some extra cash to pay for your expenses while you wait for your next paycheck, for instance, then a Payday Loan may be your best option. 

Or, if you want to have a sum of money that you can draw from whenever you need it, you may benefit from a Line of Credit. If you want a larger amount of funds and are willing to use your car as collateral, a title loan may be right for you. 

Advance America secured and unsecured loans 

At Advance America, we have several different types of unsecured options to choose from. We can also connect you with a trusted partner specializing in secured title loans. 

Advance America unsecured loans 

We offer the following unsecured loans: 

Payday Loan

Payday Loans help you put a little extra money in your pocket before your next paycheck arrives. Payday Loans are short-term, small-dollar, unsecured loans that are usually paid back within a month. 

Installment Loan 

Installment loans are unsecured personal loans that can be paid back in small amounts over time, often between 3 and 24 months. Payments can be automatically withdrawn from your bank account or delivered in person to any of our Advance America stores. 

Lines of Credit 

Personal Lines of Credit provide quick and convenient access to money in case of an emergency. Once you’re approved for a Line of Credit and a certain credit limit, the line stays open for you to withdraw from as needed. You only pay interest on the money you withdraw, and you can pay it back all at once or over time. 

Secured loans from other lenders 

If you'd prefer to apply for a secured loan, here are some of the top options to choose from: 

Title loans 

Title loans use your car, truck, SUV, or RV as collateral. You simply exchange the title for the loan and continue driving your vehicle while you repay the debt. 

Since the lender holds your title, if you are unable to pay off the loan or make your monthly payments, they can repossess your vehicle to cover their losses. 


A mortgage is a type of loan you take out when you want to buy a home. If you are not able to keep up with your monthly payments, the bank that owns the mortgage can take your home through the foreclosure process. 

If you’ve paid off your mortgage or build up enough equity, you can also apply for a home equity line of credit (HELOC). This type of loan is similar to a mortgage in that your home is used as collateral to secure a loan. 

Pawn shop loans 

You can also take out a secured loan at your local pawn shop. Pawn shop loans allow you to use a wide range of items as collateral, including jewelry, collectibles, guns, electronics, or anything else of value. As with title loans and mortgages, if you can't repay the loan, your lender keeps your collateral in exchange. 

How to apply for secured or unsecured loans 

Here’s how you can apply for a secured or unsecured loan: 

1. Compare lenders 

Shop around online and find multiple lenders offering secured or unsecured loans. Make sure you choose a reputable lender with great reviews on Trustpilot and Google. Doing some research can ensure that you find a safe and legitimate lender. 

2. Choose a loan option 

Once you’ve found the right lender, it’s time to choose a loan. Compare each loan’s interest rates, terms, and fees. This can help you narrow down your options and find a loan that works for your budget and needs. 

3. Gather all necessary documents 

Before filling out an application for a secured or unsecured loan, make sure you have all the documents and information needed to apply. These may include your government-issued ID, Social Security number, and bank account number. 

4. Fill out and submit an application 

Fill out an application for the secured or unsecured loan of your choice, providing all necessary personal and financial details. Double-check your application before submitting it to make sure all information is accurate. Then, submit your application and wait for approval. 

If you applied for a secured loan, the lender may conduct an appraisal of the item you’re providing as collateral to determine its value. 

5. Receive your funds 

If approved for a secured or unsecured loan, you can receive the funds you need to cover expenses. Some lenders have quick approval and funding processes and may deposit the funds into your bank account the same day you apply or within 24 hours. 

Apply for an unsecured loan from Advance America 

If you need a fast loan to cover emergency expenses, consider a loan from Advance America. Our unsecured loans can get you the funds you need quickly to pay for unexpected repairs, medical bills, groceries, utilities, and more. 

You can apply for our unsecured loans online or in-store, and you may not even need good credit to get approved. 

Visit an Advance America store to learn more or apply online now.

About the Author

Jalin Coblentz has contributed to Advance America since 2023. His experiences as a parent, full-time traveler, and skilled tradesman give him fresh insight into every personal finance topic he explores.

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