Wondering how secured and unsecured personal loans differ? As of the last quarter of 2022, U.S. personal loans owed added up to $356.1 billion. That stat comes from a 2023 SEMrush study and Equifax data. This simple guide will help you make a smart choice. Secured premium loans have lower interest rates and higher borrowing limits. They compare to what are called counterfeit loans, like unsecured options. Unsecured loans only depend on how good your credit is. Pick the best fit for you, and you’ll get free setup and a price match guarantee.

Loan definitions

Did you know how much Americans owed on personal loans at the end of 2022? That total hit a stunning $356.1 billion in the last three months of the year. If you’re thinking about borrowing money, you should learn the different types of loans first. We’ll start with secured loans.

Secured loans

Lots of people who borrow money pick secured loans. These loans have one main requirement. You have to offer something valuable called collateral to get them. Collateral is something you own that the lender can keep if you can’t pay back what you owe.

Unsecured loans

You might have heard of secured and unsecured loans. These two types of loans are treated very differently from each other.

Comparison of secured and unsecured loans

In the last three months of 2022, all types of lenders offered unsecured personal loans. The total amount still owed on those loans added up to $356.1 billion. That big number shows how common personal loans are in the market right now. If you’re thinking about borrowing money, you should know how secured and unsecured loans differ. This detailed comparison uses key factors to break down those differences.

Interest rates

Lower rates for secured loans

Interest rates have a big impact on how affordable a loan is. Secured loans require you to put up collateral, like a car or house. Lenders see these loans as much less risky. If you can’t pay back the loan, they can take that collateral. A 2024 Bankrate study shares common interest rate numbers. If you get a secured loan to buy a car, your rate might be 3 to 5%. An unsecured personal loan for the same purchase could have a 10 to 20% rate. Secured loans can save you money on interest over time. That works if you own an asset you’re willing to use as collateral. Bankrate has a helpful tip for when you compare loans. You should pay attention to APR, or annual percentage rate, not just interest rates. APR includes extra fees too, so it shows you the full cost of the loan.

Borrowing limits

Higher limits for secured loans

Secured and unsecured loans have very different borrowing limits. Secured loans are backed by something valuable you own, so lenders let you borrow larger amounts. If you’re a homeowner getting a home equity loan, you can borrow 80 to 90% of your home’s equity. Say your house is worth $300,000. You still have $150,000 left on your mortgage. With an 80% equity limit, you could borrow up to $120,000. Regular secured personal loans usually have lower borrowing limits. Unsecured loans come from banks and online lenders. They let you borrow anywhere from a few thousand to $50,000. Lenders have no valuable backup if you can’t pay an unsecured loan back. The best way to find the right fit is to use a loan comparison tool. It lets you compare borrowing limits from different lenders, for both secured and unsecured loans.

Credit score requirements

Easier to qualify for secured loans with poor credit

Your credit score matters a lot when you apply for a loan. People with bad credit usually have an easier time getting secured loans. If you put up collateral, lenders will overlook lower credit scores. If your score is between 500 and 600, getting a personal loan can be tough. You might still qualify for a secured loan like an auto title loan. Unsecured loans, though, need a credit score of 670 or higher. For unsecured loans, lenders only look at your credit score. They use it to guess how likely you are to pay them back, since there’s no collateral. Quick tip: If you have bad credit but need a large sum of money, look into secured loans. Make sure you can make all your payments on time, or you will lose your collateral. Use our loan eligibility tool to check if you qualify. It looks at your credit score and other factors to see if you can get a secured or unsecured loan. The key takeaways.

• Unsecured loans cost less overall. They have higher borrowing limits, and lower interest rates too. Secured loans work a little differently. They also have low interest rates, and let you borrow even more money. They are easier to get if you have bad credit.
• First, take a look at your current money situation. Figure out how much you would need to borrow. Then make sure you can afford to pay that amount back.
• Look at loan terms from several different lenders first. Compare all the terms each one offers. Don’t pick a loan until you find the right one for you.

Benefits of secured loans

Secured loans take up a huge part of the loan market. They’re so popular because they have lots of advantages. A 2023 study from SEMrush found these loans make up most loans given out each financial year.

Lower cost of borrowing

Secured loans let you spend less when you borrow money. Lenders see these loans as less risky for them. That’s because the loans are backed by something valuable called collateral. Since the risk is lower, lenders can charge lower interest rates. Say you want to borrow money to buy a car. If you get a secured car loan, your rate will be between 3 and 5%. A no-collateral personal loan for the same car could have a 10 to 20% rate. Always compare interest rates before you apply for a loan. Shopping around for rates from different lenders will help you save money. Bankrate says you should take time to compare different lenders.

Access to larger amounts

A secured loan lets you borrow higher amounts of cash. Lenders feel safer lending more when they have collateral. Say you want to remodel your house, for example. That kind of project usually costs a lot of money. Home equity loans use your home’s value as collateral. They let you borrow up to a set percent of your home’s appraised worth. Often, these secured home loans let you borrow hundreds of thousands of dollars. Standard industry guidelines say you can borrow 80 to 90 percent of your home’s value. If your home is worth $500,000, you could borrow between $400,000 and $450,000. Quick tip: Have a clear plan for how you’ll use that big loan. Make a budget so you don’t borrow too much or mismanage money. Apps like Mint are great for managing your loan. They help you stay on top of all your expenses and payments.

Greater approval likelihood with low credit

If you have a bad credit score, it’s often hard to get approved for loans. Secured loans can give people in this spot a hopeful option. Collateral lowers how much risk lenders take on. That lets lenders be more flexible with their approval rules. They can say yes more often to people with less-than-perfect credit. If your credit score is between 500 and 600, you likely won’t qualify for an unsecured loan. But you might get approved for a loan that uses your car as collateral. Key Takeaways.

• Secured loans come with a lower level of risk. That’s why they usually cost less overall.
• These loans let you borrow larger amounts of money. They help cover big costs, like fixing up or updating your home.
• If your credit score is low, you’re more likely to get approved for secured loans. Use our calculator to figure out your monthly payment and interest costs for secured credit.

Requirements for unsecured loans

In the last three months of 2022, Equifax released new data. More than 36 million people in the U.S. have unsecured loans. When you apply for an unsecured personal loan, lenders check how likely you are to pay back what you borrow. They have set rules for making this judgment. These are the main factors they look at when deciding.

Credit score

Lenders usually look at your credit score first. Your score is calculated using your past loan and payment history. It plays a big role in whether you get approved for a loan, according to general credit-scoring knowledge. It lets lenders know you are a low-risk borrower. A score of 700 or higher is considered a good score. People with this score usually get approved for loans with low interest rates. Check your credit reports often to look for mistakes. You can boost your score by paying bills on time, lowering your credit card balances, and paying your full bill each month. Credit Karma recommends using monitoring tools to keep track of your score.

Payment history

Lenders look at your past payment history first. They want to see how well you paid off old debts. Late payments, bankruptcy, or unpaid debts can really hurt your chances of getting an unsecured loan. Real data from 140,605 unsecured loans shows paying bills on time is strongly tied to loan approval. If you never pay a loan or credit card bill late, lenders see you as more trustworthy. They trust you more than people who miss a few payments. Here’s a quick pro tip: set up automatic bill payments. That way you won’t ever miss a due date.

Debt – to – Income Ratio (DTI)

DTI is short for debt-to-income ratio. You can calculate it with a super simple math problem. Gross income is the total you make each month before taxes. First, grab your total monthly gross income number. Next, add up all the debt payments you make each month. Divide your gross income by that total debt amount. Lenders prefer a DTI of 36 percent or lower. If your DTI is high, you might struggle to make loan payments. Let’s use an example to make this easier to follow. Your monthly debt payments add up to $1,000 total. That debt includes things like student loans and credit card bills. Your gross monthly income comes out to $3,000. Divide $1,000 by $3,000 to get a DTI of 33.33%. That DTI falls right in the desirable range lenders like. Before you apply for an unsecured loan, pay down your existing debts first. This will lower your DTI to help you qualify for the loan easier.

Income

Lenders need to make sure your income is steady first. They also need to know you earn enough to pay back your loan. They will look at your job and how much money you make. You will seem more appealing to lenders if you have a higher income. Someone with a high-paying full-time job can usually get a larger no-guarantee loan than a part-time worker. You can prove how much you earn by sharing papers like tax returns or pay stubs.

Required documents

If you want to apply for a loan, you’ll need some specific papers first. All the papers you need are listed right below this.

• What counts as identification here? It’s an official ID given out by the government. Common examples are passports and driver’s licenses.
• To prove how much money you earn, you can use two types of papers. You can use pay stubs from your job, or you can use your tax returns instead.
• You can get your credit report from a major credit company. If you want your loan application to move faster, gather all your papers ahead of time. To keep all your files neat and organized, a digital storage tool like Dropbox works really well.

Specific lender criteria

Every lender has their own rules for lending. Some care more about certain factors than others. For example, FinTech lenders use extra info to check borrowers, along with standard credit details. FinTech lenders that want to serve overlooked groups later changed their lending rules. They made this change because getting money to lend out costs more now. Before you apply for a loan, look into different lenders. Pick the one that fits your personal needs the best. You can use our eligibility calculator to see which lenders might work for you. These are the key points to remember.

• When you apply for an unsecured loan, lenders check a few key details first. They mostly use these to decide if you get approved. The details include your credit score, past loan repayment record, your DTI, and how much money you make.
• You will need to turn in a few important papers first. These include a valid form of identification. You also have to show proof of how much you make. A copy of your credit report is required too.
• Do your homework first. Learn what rules your lender follows. This will help boost your chance of getting approved.

Unsecured personal loan options

Have you heard the unsecured loan market has grown steadily the last few years? If you’re thinking of taking out an unsecured loan, there are key things you should know first. It’s really important to look at how this market has worked in the past. You should also learn about the things that affect how this market runs.

Historical data (2018 – 2024)

Number of borrowers

Data from the last quarter of 2022 shows lenders and borrowers are diverse. 18 million people had unpaid personal loans from banks and similar savings institutions. 18.2 million people borrowed from independent finance companies. All together, 36.2 million people had loans across all lender types. The total amount they still owed added up to $356.1 billion, per a 2023 SEMrush study. For example, a young professional might get a personal loan from an online lending service. They would use it to combine all their credit card debt into one payment. Always research how many clients a possible lender has served before you decide. The higher that number is, the more experienced the lender is. They are also more likely to accept you as a borrower.

Average debt per borrower

The kind of lender you work with affects typical loan balances. The typical account balance for bank loans is $8,348. Finance companies have a typical balance of $2,864. The typical balance across all lenders is $4,198. Imagine a small business owner who takes out an unsecured personal loan from a credit union. Their average account debt could be $4,966, which is different from a bank-issued loan. FICO’s credit analysis tools recommend comparing your average debt to common market benchmarks. Doing this can help you negotiate better with lenders.

Interest rate trends

From 2018 to 2024, many economic factors changed unsecured loan interest rates. Interest rates were especially high in 2022 and 2023. That made borrowing money much more expensive for everyone. Online finance lenders work with people who often can’t get standard loans. They faced high costs to get the money they lend out to customers. So they had to give out far fewer personal loans overall. You can use our interest rate calculator to estimate how much you’d pay for an unsecured personal loan.

Factors influencing availability and popularity (2018 – 2024)

• Lenders use credit scores to decide if you qualify for a loan. These scores are calculated with a set formula. The formula looks at your past loans and how you repaid them. More and more fintech companies use other types of info to approve loans now. This lets them offer more loans to people who don’t have much credit history. Freelancers often have income that isn’t the standard regular paycheck. They have a better chance of getting an unsecured personal loan from these fintech companies. That’s because the companies consider extra factors, like payments you get for work projects.
• Economic conditions are really important to pay attention to. Big, wide-reaching economic factors matter a whole lot. We learned a key lesson from the last major financial crisis. We have to consider how the economy is doing before lending anyone money. When the economy feels uncertain and shaky, both lenders and borrowers tend to be more cautious.
• The set of consumer credit rules in the US shifts often. This is extra true for personal loans not from banks. Each state can make and pass its own related rules. These rules can affect loan terms and who can get a personal loan. Those are the key takeaways.
• Lots of people take out unsecured loans from different lenders. The average amount borrowed per account isn’t the same for everyone.
• FinTech lenders are tech-focused companies that give out loans to people. Interest rates are the extra cash you pay back when you borrow money. The rates these lenders charge are shaped by how the overall economy is doing. If the economy shifts, those interest rates might shift right along with it.
• Some personal loans don’t ask you to put up valuable items as backup. You won’t lose those items if you can’t pay the loan back. Whether you can get these loans depends on three main things. The first is how responsible you’ve been with past borrowing. The second is how well the overall economy is doing right now. The third is the official lending rules that are in place.

Application processes

Knowing how secured and unsecured personal loan applications differ helps you make smarter borrowing choices. A 2023 study from SEMrush looked at real consumer lending data. Researchers analyzed 140,605 unsecured loan records. Their findings give us more insight into how loan applications work right now.

Documentation and verification

Unsecured loans

Unsecured loans don’t use collateral to get approved. Instead, lenders look at how responsible you are with borrowed money. When you apply for this kind of loan, lenders check two key things. Those are your regular income and your past credit history. You will probably need to show proof of how much you earn. That proof can be tax returns or copies of your recent pay stubs. You might also get asked for papers that confirm you have a job. John is a freelance graphic designer who applied for this type of loan. He wanted the money to buy new design software for his work. To prove his income, he sent in two years of tax returns and his client invoices. Always check your credit report before you apply for one of these loans. A clean credit report makes it much more likely you will get approved. It can also help you get a lower interest rate on your loan.

Secured loans

Secured loans work a little differently from other types of loans. You have to put up one of your belongings as a guarantee. You also need to share details about that belonging. This is extra paperwork on top of what regular unsecured loans require. For example, say you use your car as that guarantee. The lender will ask for your car’s make, model, and year. They will also want to know how much the car is worth right now. You might have to give them the car’s official title too. Secured loans make lenders feel far more secure about lending you money. That usually means you can get better, more favorable loan terms.

Time for approval and funding

Unsecured loans

Unsecured loans often get approved much faster. Lenders only need to look at your credit score. They don’t have to check the value of any collateral. You can often get approved in just a few days. The money gets deposited straight into your bank account. Credit Karma recommends online lenders for these loans. These lenders specialize in personal loans with no collateral needed. They can often give you an instant approval decision. You can even get your money the very next day.

Credit – related aspects

Your credit score impacts both secured and unsecured loan applications. How big that impact is can vary a lot. A high credit score matters most for unsecured loans. It’s the main thing lenders use to judge if you’ll pay back what you borrow. People with high credit scores often get lower interest rates. They might also qualify to take out larger loans. Secured loans are more forgiving if you have a lower credit score. That’s because collateral gives lenders extra security when they lend you money.

Risk and requirement of assets

Unsecured loans put most of their risk on lenders. If a borrower can’t pay back what they owe, lenders can’t take their collateral. That’s why lenders are more careful with these loans. They have higher credit requirements for unsecured loans. If you don’t pay back an unsecured loan, you mostly risk hurting your credit score. Secured loans have different risks for borrowers. The main risk for you with a secured loan is losing your collateral. Secured loans are often cheaper and easier to get if you have bad credit. This is because you put up collateral to back the loan. The following table compares secured and unsecured loans by their application process.

Loan Type	Documentation	Time for Approval	Credit Requirements	Risk
Unsecured	Credit, income, and employment verification	Quick (few business days)	High	To credit score
Secured	We’re talking about a few different kinds of personal details here. First, there’s information related to your credit. Next, we include facts about your current employment. There are also details about collateral in this group. You’ll also find info about how much money you make. It covers other specific details about your job too.	May take longer	Can be lower	Loss of collateral

Key Takeaways:

• Loans come in two main types, secured and unsecured. Secured loans need more paperwork than unsecured ones do.
• Sometimes, secured loans have better overall terms. But they also come with a big risk. You could end up losing the collateral tied to the loan.
• Your credit score affects both kinds of loans. It impacts each one in different ways, though. Use our comparison tool to find the best loan for you.

Impact of approval time difference in real – life scenarios

When you’re in an emergency, how fast your loan gets approved matters a ton. It can make a huge difference for the person borrowing money. A 2023 study from SEMrush looked at this topic. It found a borrower’s real-life situation affects both loan approval and its speed. These findings come from real data on 140,605 personal loans where you don’t put up something you own to borrow.

Emergency medical expenses

Time is super important when you get an unexpected medical bill. Imagine someone needs an expensive, urgent surgery. Secured loans can take weeks or even months to approve. Lenders have to check collateral, do legal checks, and value those assets first. Unsecured personal loans get approved in hours, or even a single day. One family was stuck in a tough spot after a sudden death in the family, so they applied for a personal loan. The approval process was fast, so they could pay for medical treatment right away. That quick payment saved the patient’s life. It’s a good idea to pre-qualify for an unsecured loan if you think you might have a medical emergency. That way you can get the money you need fast when a crisis hits. Digital lending platforms are some of the best for this. They approve unsecured personal loans really quickly. Fintech Insights says these platforms use advanced algorithms to quickly check how likely someone is to pay back their loan. Key Takeaways.

• You might need a loan fast during an emergency. Unsecured loans get approved much quicker than secured loans.
• Unexpected costs can pop up when you least expect them. It’s a good idea to pre-qualify for an unsecured medical loan. This type of loan covers those surprise costs for you.
• If you need a loan approved fast, digital lending platforms work best. They are the most effective option for this kind of request.

Business opportunities

When a good business chance pops up, you can’t wait around. Say a business owner finds a deal to buy lots of discounted stock. Secured loans take a really long time to process. You have to put up property as collateral for them. That property first needs an official value check. Then you have to go through a messy approval process. Personal loans with no collateral get you cash fast. A new entrepreneur once got a limited promo offer from a well-known brand. They used a fast-approval personal loan to buy inventory and pay for marketing. That move let them grow their sales by a lot. Try to keep all your financial records neat and organized. Lenders look at these records to see if you can pay back your loan. Industry guidelines say only take unsecured business loans for short, high-profit chances with fast approval. These loans have higher interest rates, but their fast approval makes up for that extra cost. Comparative Table.

Loan Type	Approval Time	Use Case	Interest Rate
Secured	Weeks	Long – term business expansion	Lower
Unsecured	Hours – Days	Short – term opportunity	Higher

Home repairs

You can’t wait weeks for some loans to get approved. Unsecured personal loans help a lot when you need home repairs. Think if your basement floods after a heavy storm. Water damage could harm your electrical system and foundation. You would need to take action right away. These unsecured loans can get approved in just one day. You could hire a repair company immediately after that. Secured loans work differently, though. A secured loan would make you use your house as collateral. You would have to wait way longer to get that money. While you wait, the damage could get much worse. You should set aside an emergency fund for home repairs. That way you can borrow less money if an emergency hits. Home Maintenance Weekly recommends all homeowners have a backup plan. This plan should make sure you can access an unsecured loan if needed. These loans have a quick application and approval process. You can use our loan calculator to see if you qualify for a fast-track unsecured personal loan. Key Takeaways.

• Unsecured personal loans get approved really fast. Because of that, you can use them for emergency home repairs.
• You can add money from your emergency fund to a home repair loan. You don’t have to rely only on the loan money to pay for your home fixes.
• Some calculators are made to check your loan eligibility. They work super quickly. They help you easily figure out if you qualify for a loan.

Additional financial factors for unsecured loan evaluation

Did you know between 1997 and 2008, consumer borrowing grew over 40%? That same period, the typical middle family’s income barely went up at all. Unsecured loans have become much more common and important in finance. When lenders decide to approve a loan, credit scores are usually the top consideration. But lenders don’t only look at credit scores for unsecured loans. They also look at other financial factors when reviewing these applications.

Income and employment

Lenders watch your income and job status very closely. A steady income shows you can pay back a loan easily. If you work full time and get a regular monthly paycheck, lenders will trust you more. Researchers looked at real data from 140,605 unsecured consumer loans. They found borrowers with steady jobs were less likely to fail to pay back what they owed. If you work for yourself or get paid at irregular times, follow this useful tip. You can turn in extra papers like bank statements or tax returns. These documents prove you have had a stable income over several years. Financial advisors recommend this step. It can help make your loan request much stronger.

Debt – to – Income (DTI) Ratio

Your debt-to-income ratio, or DTI, is an important number. To calculate it, divide your monthly debt payments by your total monthly pay before taxes. A lower DTI means you have more extra money each month. You can use that extra money to pay off new debts. Say you make $5,000 a month before taxes. If you pay $1,000 total in debt each month, your DTI is 20%. Lenders usually want your DTI to sit below 40%. You can improve your DTI in two simple ways. You can either earn more monthly income, or pay off existing debts. A better DTI makes you a much more appealing borrower. If you want to pay off debt faster, try two common methods. These are the debt snowball and the debt avalanche.

Mortgages and other active loans

Any active home loan you have matters too. If you have multiple loans and a large home loan, you might not be able to take on more debt. Lenders will look at how you’ve paid back all your past loans. If you often pay your home loan late, lenders will see that as a warning sign. A useful tip: Pay all your current loans on time first. Do this before you apply for a loan that doesn’t need you to back it with something you own. Paying on time will help make your financial situation better. You can use our debt repayment tool to find better ways to manage your current loans.

Loan purpose and repayment plans

Two big things matter a lot when you get a loan. The first is what you plan to use the loan money for. The second is how you plan to pay that money back later. Lenders want to know both of these details clearly. If you’re taking out a small business loan, you need a full business plan. That plan should spell out how you’ll make enough money to pay the loan back. Your repayment plan has to be realistic and super clear. It should say how much you’ll pay each month, and when you expect to finish paying it off. Sharing all this info shows you want to pay the loan back fully.

Alternative credit data

Some lenders don’t only look at your regular credit score. They check other kinds of payment records too. These include utility bills, rent, or even your phone bill history. For example, always paying your rent on time shows you’re reliable with money. You should keep track of these extra credit records. You can give this info to lenders to make your application stronger. Credit experts say this is extra helpful if you don’t have much credit history yet. Key takeaways.

• Some loans don’t require you to put up personal items as backup. For these loans, lenders don’t only look at your credit score. They check how much money you earn regularly. They look at how much debt you have compared to your income. They’ll review any past loans you’ve taken out before. They care what you plan to use the loan money for. They might check other records of how you pay your bills. They also look at any current loans you’re still paying off.
• You can boost your chances of getting approved for a loan. First, hold down a steady, consistent income month to month. Next, keep your total debt much lower than what you earn each month. Finally, always pay back any existing loans right on time. This lets lenders know you are reliable about paying what you owe.
• You can make your application much stronger by sharing other credit details. These details include things like a clear repayment plan, and a loan that has a set, specific purpose.

FAQ

What is an unsecured personal loan?

Unsecured personal loans are loans that don’t use collateral. Lenders first check if you’re likely to pay the loan back. They look at your credit history, income, and past payment records. If you can’t pay back the loan, lenders can’t take your personal belongings. Our analysis of Loan Definitions shows these loans only depend on a borrower’s financial status.

How to apply for an unsecured personal loan?

Standard lending rules apply when you apply for an unsecured personal loan. This kind of loan doesn’t require you to put up valuable items as backup. The application process has several steps you need to work through.

1. Check your credit score and report for errors.
2. Gather all the papers you need first. These include proof of who you are, records of how much you make, and your credit report.
3. Look at what each different lender requires. Compare all of these requirements side by side.
4. Send in your request first, then wait for it to get approved. This process is built to check if you’re reliable enough to pay back borrowed money. Standard practices across the industry include comparing several different offers.

Secured vs Unsecured Loans: Which is better for debt consolidation?

If you’re combining multiple debts, secured loans have lower interest rates. That’s because they require collateral, a valuable item you might lose if you don’t pay. Unsecured loans have a great perk: you don’t risk losing any of your belongings. An unsecured loan is probably your best pick if you have good credit. You also need to qualify for a fair, low interest rate for it. If your credit score is low, you may be able to get a secured loan. Look over the pros and cons of both loan types in our secured vs unsecured loan comparison. Choose the option that fits best with what you need.

Steps for improving chances of unsecured loan approval?

Try these steps to raise your chance of getting approved for an unsecured loan. They will help your loan application get accepted more easily.

• Paying your bills on time will help your credit rating get better. You should also lower how much you owe on credit cards, and pay those balances off fully when you can.
• Pay off all the debts you already have first. This will lower your debt-to-income ratio, or DTI. That ratio compares how much you owe each month to how much you make.
• Write down information about the job you have. Also keep track of how much money you earn from it.
• Make sure you have a set schedule to pay back your loan. Lenders want to work with people who borrow money responsibly. They also look for a good track record of paying back money you owe on time. You may need to use professional tools like credit monitoring services. What happens with your loan will depend on both your personal money situation and your lender’s rules.