Secured vs Unsecured Loans: Costs, Risks and Differences

The secured-versus-unsecured distinction tells you whether a specific asset stands behind a debt. It does not tell you, on its own, whether the loan is cheap, easy to obtain or safe for the borrower.

Own BTC? See how Ledn’s secured loans work →

This guide explains the difference, the trade offs to understand, and how secured and unsecured models show up in both traditional finance and crypto lending.

What is a secured loan?

A secured loan is backed by collateral, an asset the lender may claim or liquidate if the borrower defaults. Because collateral reduces lender risk, secured loans often offer lower interest rates and higher borrowing limits than unsecured loans, though terms vary by provider.

Common examples include mortgages (secured by property), auto loans (secured by a vehicle), and crypto backed loans (secured by digital assets such as BTC).

Key features of secured loans

1. Collateral requirement

Secured loans require the borrower to pledge an asset of value as collateral. This asset protects the lender in the event of non-repayment.

Typical forms of collateral include:

• Real estate (e.g. in mortgages)
• Vehicles (e.g. in auto loans)
• Cash or investments (e.g. in secured lines of credit)
• Digital assets like Bitcoin or Ether (e.g. in crypto lending)

The value of the loan is tied to the value of the collateral, often expressed as a loan-to-value (LTV) ratio. Lenders apply a conservative LTV to reduce risk. For example, a 50% LTV means you can borrow up to half the value of the asset you pledge.

Read more: Crypto Loans vs. Traditional Loans

2. Liquidation risk

One trade-off with secured loans is the risk of losing the collateral if you can’t repay the loan or if its value falls below agreed thresholds.

For volatile assets like crypto, this risk is managed through liquidation mechanisms:

• If the value of the collateral falls too far, the lender may require the borrower to deposit more collateral (a margin call).
• If no action is taken, the lender may liquidate some or all of the collateral to recover the loaned funds.

This protects the lender but creates a risk for borrowers who use volatile assets.

3. Lower interest rates

Collateral can reduce the lender's expected loss and support a more competitive offer or larger limit. It does not guarantee a lower rate than every unsecured loan. Compare actual quotes for the same amount, term and repayment schedule; the borrower is accepting the additional consequence of losing a pledged asset.

How this applies to Ledn’s Bitcoin-backed loans

Ledn offers secured loans backed by bitcoin. These loans reflect many of the above points, but the exact terms, thresholds, and availability can vary by jurisdiction and are subject to change.

Collateral requirement: Borrowers deposit Bitcoin equivalent to at least twice the amount they want to borrow (50% LTV). For example, borrowing $5,000 requires $10,000 worth of Bitcoin.

Liquidation: Ledn sends LTV notifications at 70% and 75%. At 80%, liquidation is automatic and irreversible. Enough BTC is sold to cover the outstanding balance and charges, a 0.50% trade spread applies, and remaining BTC is returned. A warning is not a guaranteed period in which to act.

Auto Top-Up: where enabled, available BTC in the Transaction Account can be added at 70% LTV toward a 68% target. It needs funds and does not guarantee avoidance of liquidation. Read the current process.

Ledn’s current pricing table lists APRs by loan amount: 10.99% below $250,000; 10.49% from $250,000; 9.99% from $500,000; 9.75% from $1 million; and 9.25% from $2 million. Eligibility and the offered agreement determine the applicable terms.

Rates and funding: compare the individual amount-based quote, fees and payout route. Approval, collateral receipt and settlement determine when funds become usable; do not rely on a universal 24-hour promise.

Checks and eligibility: No traditional credit checks are required, but identity verification and compliance checks apply.

Availability: Ledn’s loans are available in many jurisdictions, subject to eligibility and local restrictions.

Get a loan backed by Bitcoin.

What is an unsecured loan?

Unsecured loans don’t require collateral. Instead, lenders rely on credit scores, financial history, or protocol-based risk models to assess borrower trustworthiness. Because of the increased risk to lenders, these loans typically come with higher interest rates and lower borrowing limits.

Examples of unsecured loans include:

• Personal loans and credit cards (traditionally)
• Institutional credit arrangements underwritten against a borrower's financial position rather than fully secured by posted assets. Undercollateralised is not necessarily unsecured: a loan can have some security that is worth less than its balance.

Key features of unsecured loans:

1. No specific pledged asset: approval may depend on income, creditworthiness, financial analysis or a contractual guarantee.
2. Higher interest rates: To compensate for greater lender risk
3. Access: an existing overdraft or credit line may be available quickly, while a new unsecured application still requires underwriting.

Unsecured DeFi lending often targets institutions, using transparency, whitelisting, and off chain assessment to manage risk. DeFi lending can also introduce smart contract, oracle, and governance risks, and legal recourse may be limited.

Read more: Crypto Loans Without Collateral: The Complete Guide

The key differences between secured and unsecured loans

Pros and cons of secured loans

Pros:

Lower interest rates: Because the loan is backed by collateral, lenders are exposed to less risk. This often results in more favourable interest rates for borrowers.

Access to larger loan amounts: Lenders are more willing to offer higher loan amounts when they have a valuable asset to recover in case of default.

May be accessible without strong credit: Some secured products don’t require traditional credit checks, though verification and compliance checks still apply.

Cons:

You must provide valuable collateral: To qualify for a secured loan, you need to own a significant asset such as Bitcoin, property, or cash savings.

There is a risk of losing your collateral: If the value of your pledged asset drops and the loan exceeds agreed thresholds, the lender may liquidate part or all of the collateral to cover the loan.

Not always suitable for short-term or urgent borrowing: Setting up a secured loan may take longer than an unsecured one, and the collateral requirement can reduce flexibility for short-term needs.

Pros and cons of unsecured loans

Pros:

No specific collateral pledge: there is no asset-linked margin call under an ordinary unsecured loan, but collection, litigation and other default consequences can still apply.

Faster approval and access to funds: Because there’s no collateral to assess or secure, unsecured loans are often approved and funded more quickly, though this varies.

Well suited for short term needs: Unsecured loans are often used for short term borrowing where borrowers don’t want to pledge assets.

Cons:

Higher interest rates: Because there’s no collateral, lenders take on more risk and usually charge higher interest rates.

Loan amounts may be smaller: Lenders may limit how much you can borrow without collateral.

You need strong credit or platform trust: Approval typically depends on credit, income, or platform requirements. In crypto, unsecured DeFi loans are usually limited to known or whitelisted participants.

Who uses each loan type?

Secured loans are used by:

• Long-term Bitcoin holders using Ledn to borrow without selling their assets
• Individuals or businesses funding major purchases such as property or equipment
• Investors accessing liquidity while maintaining exposure to rising crypto or asset prices

Unsecured loans are used by:

• Individuals managing short-term expenses such as travel, home repairs, or education
• Borrowers who can meet the scheduled payments without tying up a specific asset
• Users with strong credit histories or verifiable reputations on DeFi platforms who don’t want to tie up assets

Secured and unsecured loans in crypto lending

Crypto lending spans both categories:

Secured crypto lending:

Ledn offers bitcoin backed dollar loans with no traditional credit checks. Identity verification and compliance checks apply, and approval and timing vary.

Provider models differ. Compare crypto loan platforms on the accepted asset and agreement. Centralisation is separate from collateralisation: secured borrowing also exists on-chain.

Institutional on-chain credit:

Do not classify a whole protocol from its historical product description. Maple Institutional currently describes secured, overcollateralised lending. BrilaRWA, formerly TrueFi, describes infrastructure connecting institutional borrowers, lenders and portfolio managers. Whether an individual pool is secured, unsecured or undercollateralised must be established from that pool’s documents.

For an unsecured exposure, recovery depends on borrower credit and contractual enforcement rather than a pre-funded collateral buffer. That is a different risk from a volatile collateral loan; neither can be assessed only by the protocol name.

Some crypto platforms are moving toward hybrid models that blend collateral with credit-based elements to optimise capital efficiency and reduce counterparty risk.

Read more: Understanding Crypto Loans: The Ultimate Guide  

Compare the same expense under both offers

Suppose you need a hypothetical $10,000 for a purchase. An unsecured offer may require regular payments assessed against income. A BTC-backed offer may require collateral and leave principal due at closure. Both can supply money, but they place demands on different resources at different times.

Compare the usable proceeds, full repayment cost, scheduled payments and balance remaining at your intended payoff date. If one offer is unavailable to you, do not substitute its advertised rate for a real alternative.

Also compare the setback: reduced income, a delayed receipt or a fall in collateral value. The fact that one lender can enforce a pledge while another may pursue other collection routes changes the consequences, not the existence of the debt.

How to decide which loan type may be right for you

A secured loan may make sense if you hold valuable assets like bitcoin, prefer lower rates and higher limits, and are comfortable managing collateral and LTV risk.

An unsecured loan may make sense if you need smaller, short term funding, don’t want to pledge assets, and can qualify through credit checks or platform trust requirements.

How Ledn helps you borrow with confidence

Ledn's Bitcoin-backed product provides liquidity without an initial BTC sale, using eligible native Bitcoin as collateral. Borrowing and selling can have different tax treatment, but a later collateral sale can still be a taxable disposal. Use a qualified adviser for the proposed arrangement.

Watch: borrowing against Bitcoin with Ledn

Monitor LTV throughout the term, not only on payment dates. Ledn's 70% and 75% notifications precede automatic liquidation at 80%, but a sharp move can cross those levels quickly. The objective is to keep a workable response plan before thresholds are reached.

Auto Top-Up uses eligible Transaction Account BTC, not a savings account. Confirm the individual-loan setting and available balance; any reserve can be exhausted.

Ledn’s current Custodied Loan model permits restricted re-posting to specified USD funding arrangements, but collateral cannot be lent out for interest. The standard term is 12 months with no required monthly payments and no early repayment penalty. That cash-flow flexibility still leaves a maturity obligation. From 1 January 2027, accrued interest and fees must be cleared at maturity or mid-term refinancing. Eligible principal can renew under the offered conditions, including LTV below 65%; available stablecoins and, if needed, BTC sales may settle charges and bring LTV to 64%.

See how much you could borrow, or open an account.

FAQs

What is the main difference between secured and unsecured loans?

Secured loans are backed by collateral (an asset like Bitcoin, property, or a vehicle) that the lender can claim if the borrower defaults. Unsecured loans don’t require any collateral and are approved based on credit history or platform trust.

Are secured loans safer than unsecured loans?

Collateral supports the lender's recovery but can put a borrower's asset at risk. The practical trade-off is the actual cost and repayment structure versus the consequences of default or a price decline. Neither label is a universal safety rating.

What happens if the value of my collateral drops?

In secured loans, if the collateral's value falls too much, your lender may issue a margin call asking for more collateral. If you do not respond in time, they may liquidate part or all of your assets to repay the loan.

Why are interest rates lower for secured loans?

A collateral pledge can improve expected recovery, which may support a lower quote. Funding costs, term, borrower profile and fees also matter; the rate comparison is not guaranteed.

Can I get a secured loan without a credit check?

Ledn does not use a traditional credit check for its Bitcoin-backed product, but verification, eligible native BTC, location and product conditions still apply.

What are the risks of unsecured loans?

Unsecured loans do not require collateral, but they often come with higher interest rates, lower borrowing limits, and stricter approval requirements. Lenders may take legal action if you default.

Who typically uses unsecured loans?

Unsecured loans are commonly used by individuals who need fast access to small amounts of funding and do not want to pledge assets. In DeFi, institutional borrowers with strong reputations may also access unsecured capital.

Does Ledn offer unsecured loans?

No. Ledn currently offers secured loans backed by Bitcoin only. These are designed to help crypto holders access liquidity without selling their assets.

How does Ledn reduce the risk of liquidation?

Ledn supplies LTV monitoring and notifications at 70% and 75%. Funded Auto Top-Up can add Transaction Account BTC at 70% toward 68%. These tools can help manage a decline, but at 80% automatic liquidation closes the balance under the process; liquidation itself is not a borrower-protection feature.

Is a secured or unsecured loan better for me?

It depends on your financial situation. If you have valuable assets like Bitcoin and prefer lower rates, a secured loan may be best. If you need quick funding, do not have collateral, and have a strong credit profile or DeFi reputation, an unsecured loan might be more appropriate.

Disclaimer

This article is sponsored by 21 Technologies Inc. and/or its subsidiaries (“Ledn”) and is for general information, discussion, or educational purposes only and is not to be construed or relied upon as constituting legal, financial, investment, accounting, tax, estate-planning, or other professional advice or recommendation. Please read Ledn’s full Risk Disclosure Statement and Disclaimers.

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