Getting a personal loan can help cover financial gaps and help you balance your monthly budget to make it more manageable. There are two types of personal loans—secured loans and unsecured loans. Understanding the similarities and differences can help you understand what the best fit for your financial situation and overall money goals might be.

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What is a Secured Loan?

A secured loan is a type of personal loan that generally requires collateral. Collateral is an asset that a lender accepts as security for a loan—meaning that if you are unable to repay a loan, the collateral can be used to repay the debt. Common collateral used for secured loans can include houses, vehicles, recreational vehicles, funds from a share certificate (CD), and more.

A secured loan can be a good option for those with unestablished credit or a lower credit score. The collateral in a secured loan helps to mitigate the risk for the lender. This means they may be more willing to approve a loan to a borrower with circumstances that would otherwise disqualify them, so a secured loan is a great option for those that may not qualify for a signature loan (also known as an unsecured loan).

What is an Unsecured Loan?

Also called a signature loan, an unsecured loan is a type of personal loan that does not require collateral. Since this type of loan does not require collateral, it is ideal to have good, established credit when applying for this loan. This type of loan generally considers your repayment history and credit score as a qualifying factor when deciding if you will be approved.

What Can You Do with a Personal Loan?

How Can You Use a Personal Loan?

Funds from secured and unsecured loans can be used for almost any purpose. Some common reasons people apply for personal loans include:

  • Debt consolidation: Combine high-interest debt into one manageable monthly payment and give your budget some breathing room.
  • Unexpected expenses: Emergency expenses, medical bills, or unexpected home or car repairs can be covered by a personal loan.
  • Major life events: Pay for weddings, travel, moving expenses, back-to-school costs, and more.
  • Large expenses: A personal loan may offer a lower rate than a credit card, which would help you save on larger purchases.

Credit Union 1 offers signature loans and secured loans. Apply today online, by phone, or by visiting a branch.