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Comparing Unsecured and Secured Loans

Comparing Unsecured and Secured Loans
Mark Cappel
UpdatedSep 19, 2023
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    2 min read
Key Takeaways:
  • A debt consolidation loan can be secured or unsecured.
  • Secured loans require collateral.
  • Unsecured loans usually have high interest rates.

Need a Consolidation Loan or Money for Home Repairs? Read About Your Options.

You may be considering a loan to consolidate credit card debt, or perhaps a loan to repair or remodel your home. This article discusses your loan options, and contains a links to learn more about your loan and grant options.

In general, loans fall into two categories:

  • Secured
  • Unsecured

A secured loan uses your property as collateral, which is called the security. If you default, the lender claims the security to pay off your loan. Although the interest rate on a secured loan is lower than an unsecured loan, the security is at risk if you fail to make the monthly payments. Typical secured loans include mortgages, vehicle loans, or pawn shop loans.

An unsecured loan is also called a personal loan or signature loan. It requires no collateral. Unsecured loans command higher interest rates than secured loans. Typical unsecured loans include credit cards, student loans, and payday loans.

With an unsecured note, the lender takes much more risk, as they have few ways to recoup their losses in case of default. This results in a higher interest rate. However, some banks and credit unions offer unsecured consolidation and home repair loans, depending on the borrower's credit score. Speak with local lenders to learn what unsecured loans they offer.

Home Equity

In a debt consolidation loan, you exchange one loan for another. The most frequent form is taking out a mortgage loan, which usually carries a lower interest rate and may be tax deductible, to pay off high interest rate credit card debt. If you own a home with equity, you may want to consider a cash-out mortgage refinance.

Be aware that shifting unsecured debt to secured debt can create a volatile situation. If there is ever a chance that you cannot afford the new mortgage payment you are now putting yourself at risk of foreclosure! In the case of a debt relief loan, most mortgages are 30-year loans, which means that the total cost and the time to debt freedom could be very high, but the monthly payment will be lower than other options and there is generally no credit rating impact.


You may qualify for an unsecured consolidation loan to pay off your debts, but if you have no collateral, such as a home, the interest rate would probably approach that of your existing credit cards. Another option is a grant or loan from the federal government. See the resource Home Repair Loans and Grants for a list of 10 government loans and grants.

To read more about cash-out refinances, visit the refinance page or the 4 Reasons for a Cash-Out Refinance article.

Struggling with debt?

Mortgages, credit cards, student loans, personal loans, and auto loans are common types of debts. According to the NY Federal Reserve total household debt as of Q2 2023 was $17.06 trillion. Housing debt totaled $12.354 trillion and non-housing debt was $4.709 trillion.

According to data gathered by from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 10% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.

The amount of debt and debt in collections vary by state. For example, in Colorado, 21% have any kind of debt in collections and the median debt in collections is $1682. Medical debt is common and 11% have that in collections. The median medical debt in collections is $693.

To maintain an excellent credit score it is vital to make timely payments. However, there are many circumstances that lead to late payments or debt in collections. The good news is that there are a lot of ways to deal with debt including debt consolidation and debt relief solutions.



MMark Rubin, Jul, 2015

Can I get a debt consolidation loan with a credit score of 640? I owe about 8500 and want one monthly payment at a lower interest rate than my credit cards.

DDaniel Cohen, Jul, 2015

I recommend that you look into the following options:

1. Peer to Peer lenders like Lending Club and and 2. FreedomPlus

Get proposals from each and see if the monthly payment makes sense and if the rates are lower than what you have on your credit cards. You won't get the best interest rate they offer with a 640 FICO score, but you should qualify for some offer.

NNathan, Jan, 2008
If you have a less than good credit score, getting another loan to pay off the debt will be a difficult proposition. Regardless, you should try and apply to see if you qualify for a loan. makes it easy to aplly to multiple lenders. Just put in your information at you are going through a financial hardship you should look into a credit counseling program, also know as a Debt Management Plan. In a debt management plan, a knowledgeable counselor will guide you in creating a budget and the company will handle all payments to your creditors usually on a reduced interest rate. This might help in lowering your payments to a certain extent. can match you with qualified providers, just fill in your information at
ttina, Jan, 2008
hi i want to borrow the money to pay off my credit card/ i have owes to couple credit card company around 6000.00 please help i need to pay off .everymonth i alway have overdraft from my checking account. and my expense cant cover my car payment and bills.
aairhoho, Feb, 2011
Greetings,Have you been looking for financing options for your new home purchase, construction, refinance, debt consolidation, personal or business purpose.