Are Personal Loans Secured or Unsecured?

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Understanding How Secured Personal Loans Differ From Unsecured Ones

Personal loans are a type of loan that individuals can obtain from financial institutions such as banks, credit unions, or online lenders. When considering a personal loan, as a borrower, you should carefully evaluate the interest rates, fees, repayment terms, and your ability to make monthly payments. Personal loans can be secured or unsecured, depending on the terms and conditions set by the lender and your financial situation. Here are the major differences between them.

Secured Personal Loans

Secured personal loans require you to provide collateral, which serves as security for the lender if you fail to repay the loan. Collateral can be any premium asset, such as a house, car, or savings account. Therefore, the lender can seize the security to recover the outstanding balance if you default on the loan.

Features of Secured Personal Loans


The collateral value typically determines the loan amount that you can borrow. Higher-value collateral may allow you to access higher loan amounts.

Repayment Period

Secured personal loans often have extended repayment periods since collateral gives the lender greater security. Moreover, this longer duration may appeal to you because monthly payments will be lower.


Secured loans may be more accessible to individuals with limited credit history or lower credit scores. This is because the collateral mitigates the lender’s risk.

Advantages of Secured Personal Loans

Lower Interest Rates

The primary advantage of secured loans is their lower interest rates. This makes them an attractive option for borrowers looking to save on interest charges over the loan term. Annual percentage rates (APRs) can be as low as 3% for borrowers with good credit scores.

Higher Loan Amounts

Securing the loan with collateral allows you to access larger loan amounts, making secured loans suitable for significant expenses like home renovations or large purchases.

Disadvantages of Secured Personal Loans

Risk of Losing Collateral

If you fail to repay the loan, the lender can sell the security to recover their losses. This can have severe consequences, especially if the collateral is a valuable asset like a house.

Lengthy Application Process

Secured loans generally involve a more complex and time-consuming application process than unsecured loans. It may take time for the lender to assess the value and condition of the collateral. 

Limited Eligibility

Not all borrowers have sufficient collateral to secure a loan. Lenders limit secured loans to borrowers with valuable assets for collateral.

Examples of secured personal loans include:

  • Mortgage loans – The house you purchase is collateral for the loan. 
  • Auto loans- When individuals finance a vehicle purchase, the car itself often serves as collateral for the loan. 

Unsecured Personal Loans


Meanwhile, in today’s fast-paced world, financial needs arise unexpectedly, and sometimes, funding sources may need to be more readily available. In such situations, unsecured personal loans provide a viable solution. These loans are a popular form of borrowing that does not require collateral. Unlike secured loans backed by assets such as a house or car, unsecured loans are granted based on the borrower’s creditworthiness, income, and financial history. 

Features of Unsecured Personal Loans

No Collateral

An unsecured loan means you don’t have to pledge assets as security for the loan. This aspect makes unsecured loans accessible to individuals who may not have valuable assets to offer as collateral.


Unsecured loans rely heavily on the borrower’s credit history and score. Lenders assess these factors to determine the borrower’s creditworthiness and the risk of lending them money. A higher credit score usually leads to more favorable loan terms, such as higher borrowing limits. 

Fixed Interest Rates

Unsecured personal loans typically come with fixed interest rates. The interest rate remains constant throughout, ensuring predictable monthly payments and providing stability to help plan your finances accordingly.

Flexible Use of Funds

Unsecured personal loans offer flexibility in fund utilization. You can use the loan proceeds for various purposes, including debt consolidation, medical expenses, education, or even home renovations, as long as the borrower adheres to the loan agreement. 

Advantages of Unsecured Personal Loans

No Risk to Assets

Since unsecured personal loans do not require security, borrowers do not risk losing their assets if they fail to repay the loan. This aspect can be appealing to individuals who are unwilling to put their assets at risk.

Quick Approval and Disbursement

Unsecured loans often have a streamlined application and approval process. Lenders primarily focus on the borrower’s creditworthiness and income, making it faster to acquire the loan.

Versatile Borrowing Limits

Unsecured personal loans can accommodate a wide range of borrowing limits, depending on the borrower’s credit profile. Individuals with good credit may be eligible for higher loan amounts, allowing them to fulfill larger financial goals. This flexibility makes unsecured loans suitable for both small and significant expenses. 

Building Credit History

Repaying an unsecured personal loan can positively impact your credit report. Timely payments and responsible borrowing behavior can help improve credit scores, making it easier to secure favorable loan terms in the future. 

Disadvantages of Unsecured Personal Loans

Higher Interest Rates

Since lenders assume more risk by not having collateral as security, they offset this risk by charging higher interest rates. Therefore, you should carefully evaluate the interest rates offered and consider whether the benefits of an unsecured loan outweigh the cost.

Credit Requirements

Individuals with poor credit may not qualify for unsecured loans, or they may encounter less favorable terms. So, as a borrower, you need to review your credit profile before applying and consider strategies for improving creditworthiness if needed.

Impact on Debt-to-Income Ratio

Lenders assess your debt-to-income ratio (DTI) to evaluate your ability to manage additional debt. However, an unsecured loan can increase your DTI ratio, potentially affecting your future borrowing capacity or qualifying for other financial products. 

Eligibility of Unsecured Personal Loans

Eligibility and the application process for unsecured personal loans can differ depending on the lender and the specific loan product. However, here are some standard eligibility criteria and steps that most borrowers need to follow.


Lenders assess your creditworthiness primarily based on your credit history and credit score. A higher credit score indicates a reduced default risk and improves loan approval chances. Lenders may also consider your payment history, outstanding debts, and overall credit utilization.

Income Stability

Lenders want to ensure that you have a steady source of income to make regular loan payments. They may request proof of income, such as tax returns, recent pay stubs, or bank statements. The income requirement may vary depending on the loan amount and the lender’s policies.

Age and Residency

Borrowers are usually required to be of legal age and residents of the country where the loan is being offered. Lenders may also request proof of identity, such as a government-issued ID like a driver’s license or passport.

Loan Application Process

Gather Documentation

Collect the necessary documents required for the loan application process. Relevant documents may include identification documents, proof of income, bank statements, and any other supporting documents requested by the lender.

Complete the Application

Fill out the loan application form, which typically requires personal information, financial details, employment history, and the desired loan amount. Make sure that all the information you provide is accurate and up-to-date.

Submit the Application

Some lenders allow online applications, while others may require you to visit a physical branch or send the application via mail. Therefore, follow the lender’s instructions for submission.

Credit Check and Evaluation

The lender will review your credit history and score, income documents, and other relevant information. This process helps them determine whether to approve or decline the loan application.

Loan Approval and Offer

The lender will offer you a loan if your application is approved. The proposal will outline the loan terms, including the loan amount, interest rate, repayment period, monthly payment amount, and associated fees. You need to carefully review and understand the terms before accepting the offer.

Acceptance and Disbursement

Upon acceptance, you must provide additional documentation, such as a signed loan agreement and any requested legal forms. The lender will then process the loan and disburse the funds to your designated bank account. 

Trust the Pros at American Business Credit for Personal Loans

American Business Credit is a reputable lending institution you can trust for both secured and unsecured personal loans. Reasons to consider us include:

  • Competitive interest rates: Our competitive loan interest rates can help you save money over the life of the loan. 
  • Flexible repayment terms: We allow you to select a repayment plan that aligns with your income and budget. 
  • Quick, efficient process: We streamline the application and approval process, so you can promptly access the funds you need.
  • Customer-centric approach: We strongly emphasize customer satisfaction and strive to deliver exceptional service. Our knowledgeable, experienced team assesses your unique needs to deliver a personalized experience.

Take the first step toward acquiring your personal loan by contacting American Business Credit today.

Kayleen M
Kayleen M
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American Business Credit exceeded my expectations! They were so helpful from the very beginning of the process to the end. Everyone I came into contact with were very professional and had valuable incite to help me with any hesitations and questions that I had. I am very impressed with the service they provided. Craig Johnson was my main advisor through this process and I would high recommend him based on his expertise, guidance, and service he provided to me as a client. Any financial needs I have in the future I will be a returning customer of American Business Credit. Thank you Craig for all your hard work.
Derek J
Derek J
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American Business Credit was extremely knowledgeable, professional, and helpful from start to finish. My loan processor Craig was extremely helpful, answering all of my questions as they arose. They delivered the exact results promised during our first call in a timely manner. Highly recommend.
Eduard A
Eduard A
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I am so glad I found ABC, every company or lender I talked to told me we needed to have revenue on our business to get a loan, well we are a start up, and need the loan to get started generating revenue. ABC was able to get us funded at great rates in a short amount of time. I definitely plan on using them again as our business grows!
Erik R
Erik R
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Amazing! Kina Jackson was sooooo helpful and made the process a breeze! We weren't sure what we could get as a start-up and needed a ton of equipment to get our business going. Kina dug deep and found us what we needed to fund our equipment needs and we can't thank her enough! Thanks again Kina and American Business Credit! Stop by the store next time you're in Vegas! - Erik Rogers, Veg-In-Out Market
Cassandra M
Cassandra M
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Kina was amazing to work with. As a new business owner and limited credit history, she really went to bat to ensure my business plan was heard by the lenders, so they felt confident in investing with me. Highly recommend!!

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