What is a Secured Loan?

When you are in need of a loan, you have a ton of options like personal loans, lines of credit, auto loans, and the list keeps going. Each loan is designed differently with its own rates, terms, and requirements. However, with these differences, what they all have in common is whether they are secure or unsecured. But what does this mean?

Secured Loan

A secured loan is a loan that allows a member to put up an item of value in exchange for the cash they need. The most common secure loan is a typical auto loan. When members are in need of an auto loan, they can come to R1 and borrow the funds they need to secure the vehicle from the dealership. If, for any reason, the loan defaults and cannot be paid, the Credit Union can collect the said auto in exchange for payment.

Unsecured Loan

An unsecured loan does not require any collateral. A common unsecured loan is a personal loan or a credit card. If an unsecured loan defaults on payment, it reports negatively on your credit, but no items of value, like your car, can be collected.

Secure and Unsecure Loan Types

Loan types such as a personal loan and credit cards can be both secure and unsecured. For instance, if you are in need of cash, you can use your paid-off car as collateral. R1 can even place funds on hold in an account for a secure credit card, so if payments cannot be made, funds can be retrieved from the frozen funds to cover the negative card balance.


Secure loans normally have lower rates and have fewer requirements than unsecured loans. They have known to be easier to obtain for people who might have a low credit score, credit history, or income. This is due to the fact that the financial institution you are borrowing from has an item of value to collect, so they are at less of a loss if the borrower cannot pay the loan.

Unsecured loans have no backup plan for the financial institution if anything goes wrong, so these loans types have more requirements. These loans are given in good faith that the borrower has the capability and history of repaying the loan.

If you are in need of a loan and feel like your credit score or history might be too low, you might be surprised! Talk to one of our loan officers today to find a secure or unsecured loan option that works for you.

Building Credit

The good news is that with R1CU, we work with our members to build positive credit history and work towards their goals. Meet with a Budget Buddy today to discuss your circumstances and work on a plan to improve your credit. Or, login to Online or Mobile Banking today and start using our FREE credit monitoring tool to see your score and get tips on how to improve.

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