Unsecured personal loans are the most common: no collateral required, approved on creditworthiness alone. Secured personal loans pledge an asset (savings account, CD, vehicle) to get a lower rate. If you have savings or a vehicle to pledge and want a lower rate, secured wins. If you have good credit and don't want to pledge assets, unsecured wins.
Banks and credit unions
Collateral-backed personal loan — lower rate, but you pledge an asset.
Pros
Online lenders, banks, and credit unions
No collateral required — approved on credit and income alone.
Pros
Pick Secured Personal Loan if: Borrowers with savings, a CD, or a vehicle willing to pledge it as collateral to get a lower rate than their credit score would otherwise support.
Pick Unsecured Personal Loan if: Borrowers with 640+ FICO who don't want to pledge assets and are comfortable with a slightly higher rate.
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Collateral. A secured personal loan requires you to pledge an asset (savings account, CD, vehicle) as collateral — the lender can seize it if you default. An unsecured personal loan requires no collateral; approval and rate are based entirely on creditworthiness. Secured loans typically offer lower rates and easier approval for borrowers with fair credit. Unsecured loans don't put assets at risk but require stronger credit profiles for competitive rates. Source: CFPB personal loan guidance at consumerfinance.gov.
Common collateral includes: savings account balances or CDs (called share-secured loans at credit unions); vehicle titles (auto-secured personal loans); and in some cases investment account balances. Real estate is typically used as collateral for home equity loans and HELOCs, not personal loans. Savings-secured loans at credit unions are common credit-building tools for borrowers with thin or damaged credit. Source: NCUA at mycreditunion.gov.
Yes — a credit union savings-secured loan (borrowing against your own savings at a low rate, then repaying on schedule) is one of the most reliable credit-building strategies. You maintain access to your savings, pay a small net interest cost, and establish a positive installment payment history reported to credit bureaus. The NCUA has detailed guidance on credit-builder loans at mycreditunion.gov.
The lender can seize the pledged collateral — your savings, CD, or vehicle — to satisfy the debt. Default also damages your credit score through missed payment reporting. For savings-secured loans, the lender typically freezes the savings account and applies it to the loan balance. Unsecured loan defaults result in credit damage and potential collection action, but no asset seizure without a court judgment. Source: CFPB debt collection guidance at consumerfinance.gov.
Independent editorial comparison. ClearValue Lending is not the issuer of any product compared here; affiliate links may pay a referral commission at no cost to you — selection is independent of compensation.