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What is the Difference Between Secured and Unsecured Loan

The difference between a secured loan and an unsecured loan may be easy to grasp, but deciding which one you should pick might take some pondering.

Secured loans require collateral, usually an asset that banks can possess if you default on payment, hence the term ‘secured’. Unsecured loans don’t require such, but legal processes may force a loanee to do so during bankruptcy.

Examples of Secured Vs Unsecured Loan


Car loans are one of the perfect examples of secured loans in Singapore. As the banks or the financial institutions pay the car company on your behalf in order for you to have the car, you in turn pay the bank on an agreed rate.

Let’s say you are purchasing an entry-level four-door sedan that costs around $82,000 here in Singapore, and the bank computes that you have to shell out around $825 per month including the interest rate to fulfill your obligations.

Once you miss out on payments for two to three months, you can expect the banks in Singapore to repossess your car — the same goes with mortgages.

Aside from car loans and mortgages, personal loans in Singapore with high loan amount sometimes require applicants to place a pricey asset as a collateral — making it well into the secured loan category.


But for unsecured loans like student loans, credit card loans, and personal loans banks, having no assets placed as collateral can ultimately result in driving your debt higher, as you are forced to seek other loans to payoff your existing debts, therefore increasing interest rate.

Other forms of unsecured loans include bank loan for personal purposes, vacation loan, and home loans.

Tips Before Getting a Loan

It is easier to get approved for secured loans

Given this information, people would naturally shy away from a secured loan vs unsecured loans, as what is the point of taking a personal loan, a car loan or a home loan when you can end up losing it if you fail to pay for some time?

Well, the quick answer is that it is not always the case; compared to unsecured loans, it is a lot easier to get approved for secured loans applications as banks and financial institutions would of course be concerned with their longevity and security.

Collaterals, of course, provide security in case a person fails to settle the loan payments and the interest.

This is also the reason why a lot of banks seem to have a lot of cars and properties in their name — because people who fail to pay their personal loan on time have no way but to give up their possessions. The bank in turn can sell it to people willing to continue paying the loan amount, or the payments that the original owner had already made.

Opt for unsecured loan if you have good credit score

When trying to apply for unsecured loans, one primary consideration looked at by banks is the applicant’s credit rating, which may not look good due to several factors. Bad credit scores may result from defaulting on previous payments like those stemming from credit card, being affected by identity theft, and lack of existing credit applications or new applications.

Unlike secured loans, banks or firms offering unsecured loans like personal loan Singapore cannot immediately seize control of your assets, as there would be legal processes first before that materializes. Legal proceedings might even provide avenues for the person with unsettled loan obligations to allow him or her to comply with the payments, like opting for bankruptcy where courts will decide how a person can pay back a loan.

Consider debt consolidation program 

Another option for growing debt and high interest rates due to unsecured loan is availing a debt consolidation program, wherein a bank willing to take the loans that you defaulted on pays the financial institutions you owe. The person would then have to pay the loans paid by the agency offering debt consolidation on your behalf, for lower interest rates but over a long period of time.

This is why unsecured loan offerings take a look at credit ratings way more intently than those who give secured loans. Remember, defaulting on loan payments would take a significant hit on your credit rating.

And low credit rating means that the next time you borrow — with that poor credit rating history due to non-compliance with payments — might mean that you have no other way but to opt for secured loans.

What is important is striking a balance between the loan that you want, and the loan that is available to you right now. You can also assess how much you really need, as smaller loans tend to get approved easier than larger ones.

So Which Way to Go in the Secured Vs Unsecured Issue?

If you have a good credit score and are confident that your request will be approved by banking institutions, then by all means try for an unsecured credit.

But if your credit score is low and if you have had a history of not being able to pay loans on time, then maybe secured loan Singapore would be the best choice for you as of now.

Researching is important too as it would give you a peek at other aspects regarding these loans. For secured loans, is the company asking for a huge collateral that sometimes do not equal the money that you have been seeking?

And for unsecured loans, are interest rates too high, meaning that you might be paying longer than you should actually be?

Where to Apply

There are many financial institutions around Singapore which you access through the internet — which is important nowadays to limit exposure to avoid contracting the coronavirus. 

For example, Singapore’s Instant Loan has a user-friendly website that is easy to understand and read. Instant Loan also offers free quotes for your desired loans, which allows you to compare them against other top financial institutions in the country

To apply for loans through Instant Loan, you can do the following steps:

  • Go to the bottom of the Instant Loan page and place details required, and submit the filled-out form;
  • Using the calculator, select the amount of money you would like to borrow and your desired loan duration.
  • After Instant Loan sends you at least three loan quotes, you can already start picking one!

Free calculators give you an idea of how much the interest rate is and the duration of the payment schemes depending on the amount to be loaned.

With these easy steps, you can apply for loans online by simply filling out forms, far away from concerns that you might get exposed to the latest coronavirus strain. You can do this from the comforts of your home, as they also provide customer support through chat applications on the website.

Picking the right loan is never an easy task especially when you try to think ahead of the situation, meaning when you worry about issues you might face whether you are acquiring a secured or unsecured loan.

But understanding how both unsecured and secured loan work, and the advantages and disadvantages of one over the other, would at least give you some help in deciding whether you should get a loan or not.

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