Secured vs. Unsecured Loans | CIBC (2024)

FAQs

What's better, a secured or unsecured loan? ›

Since secured loans will often have lower interest rates and higher borrowing limits, they may be the best option if you're confident about being able to make timely payments. That said, an unsecured loan may be the best choice if you don't want to place your assets at risk.

Because an unsecured personal loan has no collateral backing it, you may encounter higher interest rates, fees and other things they could limit how far is the loan could go. In addition, the lack of collateral could make it hard for those with lower credit scores to get approval.

Mortgages, including home equity loans and HELOCs. Auto loans and loans for boats, motorcycles and other types of vehicles. Secured personal loans. Secured credit cards.

Secured loans can be beneficial depending on your financial situation. They're generally easier to qualify for, which is especially valuable if you have bad credit. Paying them back on time can also help you build your credit score. But secured loans also carry hefty penalties if you don't repay your loan.

A personal loan can affect your credit score in a number of ways⁠—both good and bad. Taking out a personal loan isn't bad for your credit score in and of itself. However, it may affect your overall score for the short term and make it more difficult for you to obtain additional credit before that new loan is paid back.

Ideal credit score to avail a personal loan

The minimum CIBIL score for a personal loan is between 720 and 750. Having this score means you are creditworthy, and lenders will approve your personal loan application quickly. They may also offer you your chosen loan amount at a nominal interest.

If you're asking yourself, “Is a shared loan good for credit?,” the answer is “yes” you can use a secured loan to build credit. A shared secured loan is a great first step to build or rebuild your credit because instead of using your credit score, you use your own funds as collateral.

Consolidating debt.

Unsecured loans are useful as debt consolidation tools that can make debt repayment simpler. This strategy can also help borrowers save money if they qualify for lower interest rates.

From the borrower's point of view, secured debt carries the risk that they'll have to forfeit their collateral if they can't repay. On the plus side, however, it is more likely to come with a lower interest rate than unsecured debt.

What happens when you pay off a secured loan? ›

A repossession stays on your credit report for up to seven years. When you take out a secured loan, the lender puts a lien on the asset you offer up as collateral. Once the loan is paid off, the lender removes the lien, and you own both assets free and clear.

Most secured loans are installment loans, meaning you receive all your funds at once and make equal monthly payments until the loan is paid in full. Interest rates are typically fixed, and repayment terms may be as short as one year for a secured personal loan or as long as 30 years for a mortgage loan.

What Credit Score Is Needed for a Secured Personal Loan? Every lender is different. One may require a credit score of 670, while another doesn't set a minimum score requirement. You'll have to check the eligibility requirements of lenders you're considering to see if they require a minimum credit score or not.

The main advantages of an unsecured loan include: You don't have to leverage any of your assets to secure funds. Your loan approval may be completed faster because there are no assets to evaluate. Unsecured loans may be a better option for borrowing smaller amounts.

Can I change from a secured loan to an unsecured loan or vice versa? Once you start a quote, you will not be able to switch between a secured and an unsecured loan or visa versa.

Secured and unsecured credit cards have similarities, but they are different types of credit cards. Secured cards require a deposit, unlike unsecured cards. Compared to secured credit cards, unsecured credit cards may have lower interest rates and fees and higher credit limits.

While secured credit cards are a popular option for building or rebuilding credit, they aren't necessarily better or worse for your credit than unsecured cards. In fact, the type of card, the card's fees, the interest rate and whether it's secured don't have any impact on your credit scores.

Unsecured loans don't require collateral, reducing the risk of losing assets. They also typically have faster approval processes. However, interest rates might be higher due to increased risk for lenders.

Since secured loans have an asset attached to them that the lender can use for repayment if you default on the loan, they generally come with lower annual percentage rates (APRs) than you would find with unsecured loans.