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    Are Unsecured Loans Or Secured Loans Better For Bad Credit Borrowers?

    Bad credit borrowers may find it difficult to qualify for some types of loans due to their FICO scores - but there are ways to get around this obstacle.

    Secured loans offer the possibility of loan approval and higher loan amounts than unsecured loans, and they are widely available to customers who own some form of asset.

    Let’s take a look at the pros and cons of both secured and unsecured loans.

    What Is The Difference Between Unsecured and Secured Loans

    The main difference between secured and unsecured loans is that a secured loan requires an asset (like a home or vehicle) to be posted as collateral while an unsecured loan doesn’t have any collateral requirements to “secure” the loan.

    Here are some of the main differences between these two types of loans.

    • A secured loan will require you to own an asset and make it available as collateral for the loan.
    • The asset must belong to you and could be repossessed if you fail to make loan payments.
    • A secured loan could help you get approved for a higher loan amount.
    • An unsecured loan doesn’t require collateral but it’s not easy to be approved with a low credit score.
    • The loan amount you may be approved for could also be lower on an unsecured loan if you have bad credit.
    • Secured loans often have lower APRs than unsecured loans.
    • Unsecured loans can be used for almost any legal purpose.
    • Secured loans will need to be used for a specific purpose - usually to purchase an asset.

    Your credit score, the amount you want to borrow, and the purpose of your loan will all determine whether a secured or unsecured loan is best for you.

    Let’s take a look at the benefits and disadvantages of both.

    Pros & Cons of Unsecured Loans

    Unsecured loans don’t require collateral and you’ll be free to use them for almost any purpose - but you’ll need a good credit score to qualify for the best rates and terms.


    • Unsecured loans are approved based on your income, expenses, and credit score.
    • You won’t need to provide an asset like a house or vehicle as collateral.
    • Lenders aren’t usually too concerned about what you’ll be using the loan for as long as it’s not gambling, buying shares and equities, or (sometimes) paying off student debt.


    • Bad credit customers don’t usually have a high enough credit score to qualify for unsecured loans.
    • If you do qualify you may have to pay a very high APR.
    • The loan amount you qualify may be lower than a secured loan.

    Pros & Cons of Secured Loans

    Secured loans require collateral.

    This could be a vehicle (either a car, motorcycle or boat), your home, or another property.

    You may be able to qualify for a larger loan amount and a lower APR with a secured loan.


    • Secured loans are less risky from the lender’s point of view. They may be willing to lend you a larger amount than they would with an unsecured loan.
    • The APR you will pay on a secured loan is usually lower than on an unsecured loan - even with the same lender.
    • Bad credit borrowers may still be approved for secured loans even with a low credit score.


    • Providing collateral for a secured loan means that your vehicle or home could be repossessed or foreclosed on if you default on your loan payments.
    • A secured loan can usually be used only for a specific purpose - like purchasing the same asset that is used to secure it.
    • There may be appraisal fees involved so that the lender can value the asset you are using as collateral.

    Which Loan Type Is Better For Bad Credit Borrowers?

    As a borrower with bad credit, it’s best to weigh up the pros and cons of an unsecured and secured loan before you apply.

    Having an asset to use as collateral can boost your chances of being approved for a secured loan.

    You’ll need to make sure that the asset is in your name and that it’s paid off or nearly paid off.

    • It’s important to note that a secured loan can’t be used for just anything - you’ll have to tell your loan provider exactly what you plan to use the loan for when you apply.
    • If you meet the conditions to apply for a secured loan you could benefit from a higher loan amount, easier repayment terms, and a lower APR.
      Can you still apply for a bad credit loan if you don’t own any assets? The answer is yes - but you’ll want to have a FICO score of 660 or more.
    • There may be loans available for customers with lower scores than this, but the APR will be significantly higher.
    • Your loan amount will probably be lower if you apply for an unsecured loan with bad credit - but you’ll be free to use the money for almost any expenses you need to pay.

    It’s always good to weigh up your credit score, the collateral you have to offer, and the amount you need to borrow before you apply for a loan.

    You’ll also want to think about what you plan to use the loan amount for before you apply.

    Key Takeaways

    Secured and unsecured loans both have specific benefits and drawbacks that you’ll want to bear in mind when you apply.

    Bad credit customers who own assets that can be used for collateral may find it easier to be approved for a secured loan.

    This is especially useful for vehicle purchases since the vehicle itself can be used as collateral.

    Unsecured loans usually require a credit score above 660 and the loan amount may be smaller than it would be for a secured loan.

    However, you have the freedom to use the funds for almost any legal purpose.