Secured vs. Unsecured Loans: What You Should Know

Wise Loan Editorial Team
By: Wise Loan Editorial Team

Distinguishing Between Secured and Unsecured Loans

Secured and unsecured loans stand apart due to several key distinctions. Here, we delve into these disparities that warrant consideration when seeking financial assistance.

Understanding Secured & Unsecured Loans

Secured loans are underpinned by tangible assets as collateral. For instance, a house secures a mortgage, and a car secures an auto loan. By accepting a secured loan, you essentially grant the lender the right to reclaim the asset if you fail to meet your repayment obligations. This collateral serves as a safeguard for the lender against potential default. Conversely, unsecured loans lack this collateral element and are typically extended to individuals with a robust credit history.

Interest Rates

Interest rates diverge significantly between these loan types. Unsecured loans typically carry higher interest rates because they lack collateral, which elevates the risk for financial institutions. In the absence of collateral, banks cannot repossess property like a car or home in the event of non-payment. Secured loans, on the other hand, feature lower interest rates because the collateral provides a safety net for the lender.

Term Length

Unsecured loans tend to have shorter loan terms. This is primarily a risk mitigation strategy for lenders. Financial institutions aim to recover their funds swiftly, thus unsecured loans often come with smaller loan amounts to be repaid in a shorter duration.


Qualifying for an unsecured loan can be more challenging. Lenders prefer individuals with impeccable credit histories and a strong rapport with the financial institution. This trustworthiness assures lenders that the borrower will fulfill their repayment commitments. While a good credit score can also secure a secured loan, it doesn’t necessarily hinge on an existing relationship with the bank.

 Secured vs. Unsecured Loans What You Should Know

If you’re seeking an unsecured installment loan, Wise Loan is a reliable option to consider!

The recommendations contained in this article are designed for informational purposes only.  Essential Lending DBA Wise Loan does not guarantee the accuracy of the information provided in this article; is not responsible for any errors, omissions, or misrepresentations; and is not responsible for the consequences of any decisions or actions taken as a result of the information provided above.

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About the Author

Wise Loan Editorial Team

Wise Loan Editorial Team

Introducing the Wise Loan Editorial Team – a collective of experienced finance and credit professionals dedicated to enhancing your financial path. Our team boasts over three decades of expertise in the finance sector, united in our commitment to deliver reliable and practical financial insights. True to the Wise Loan ethos, our goal is to positively impact the financial well-being of our customers.

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