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The Difference Between Secured and Unsecured Personal Loans

A personal loan is a simple way to get low-interest financing for just about any purpose – but what’s the difference between a secured and unsecured personal loan?

For a secured loan, your credit union will hold some of your funds as collateral until your loan is paid in full. For an unsecured loan, you don’t need to put up any assets. Read on to find out more about a secured vs. unsecured personal loan.

What Is a Secured Personal Loan?

A secured personal loan, or share/certificate secured loan, is a convenient tool that allows you to borrow money against the funds you have in a checking, savings, or share certificate account.

When your loan is paid on time and in full you’ll get access to your funds again, and your credit score will have improved, too.

This type of loan is ideal if you:

  • Want access to funds while keeping your savings intact
  • Are at the beginning of your financial journey and want to start building your credit
  • Need to turn your credit around after making a few mistakes

What Is an Unsecured Personal Loan?

An unsecured personal loan means you can borrow a lump sum of money for a variety of purposes, and your credit union doesn’t hold any of your assets as collateral for your loan.

This type of loan is ideal if you:

  • Want access to funds at a low annual percentage rate (APR)
  • Have an established financial history
  • Have a good credit score

Secured vs. Unsecured Personal Loans Similarities

There are many similarities between secured and unsecured personal loans, including:

How You Can Use Your Personal Loan

Both types of loans can be used for just about anything you want. You’ll need to give your credit union a general idea of how you plan to use the funds.

Common uses for personal loans include:

  • House repairs or renovations
  • Replacement appliances or buying furniture
  • Car repairs or car purchase (though you could also get an auto loan!)
  • Health care bills, plus dental or vision expenses
  • A vacation or family event like a wedding
  • Debt consolidation, for example, using your loan to pay off high-interest credit cards

How You Get Your Interest Rate

For unsecured personal loans, the annual percentage rate (APR) you get will be determined by your credit score. The better your credit, the lower your rate. In terms of fees, Freedom Credit Union does not charge any.

For secured personal loans, we have a fixed set rate for everyone, which is 2% above the rate you earn on the Share/Certificate that you are pledging, with a minimum of 7% APR.

Equal Monthly Payments

You’ll make the same payment each month for both secured and unsecured personal loans. The amount you pay will depend on how much you borrow (the loan principal), your loan term, and your APR.

Having the same monthly payment can make budgeting easier than for a credit card, which usually has different payment amounts due each month based on your outstanding balance.

Building Credit

When comparing a secured vs. unsecured personal loan, there’s no difference in how much the loan will help boost your credit.

You should keep these points in mind with both types of personal loans:

  • To improve your credit score, you must make your loan payments on time each month.
  • It will take at least a few months to see a positive change in your credit report.
  • Missed payments will hurt your credit.

A Range of Loan Terms

You’ll likely be able to choose how long you borrow the money for no matter whether you get a secured or unsecured personal loan.

A typical range is from 12 to 60 months. Make sure you choose a term that gives you an affordable monthly payment for your budget, while also getting the best interest rate possible.

  • A shorter loan term means you’ll have a higher monthly payment but you’ll pay less total interest over the life of the loan.
  • A longer loan term means you’ll have a lower monthly payment.
  • People with lower credit scores might not be offered the longest loan terms as there is more chance your finances will change in that time, and you may default on your loan.

Secured vs. Unsecured Personal Loans Differences

There are a few key differences between secured and unsecured loans, including:


With a secured personal loan, your credit union uses your savings as collateral for the loan. But with an unsecured personal loan, you don’t have to put up any funds or assets to secure the loan.

Credit Score

You can usually qualify for a secured personal loan with a lower credit score than for an unsecured personal loan. That’s why a secured personal loan is a great option if you’re just starting out or if you don’t currently have stellar credit.

Interest Rate

An unsecured personal loan sometimes comes with a higher APR than a secured loan. This is because there is no collateral backing the loan, and your credit union could be taking on more risk if you have a lower credit score.

Next Steps to Choosing the Right Loan for You

Now that you know the main differences between secured and unsecured personal loans, it’s time to look at some loan offers available to you and see what will work best for your needs.

Click below for more details on secured vs. unsecured loans!

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