Unsecured loans do not require collateral, but they typically have higher interest rates because the lender takes on more risk.
Guide to Secured vs Unsecured Installment Loans Texas Borrowers
- Kul Deep
- Last Updated on July 23, 2026
A secured installment loan uses property as collateral. An unsecured installment loan does not. That single difference changes your rate, your approval odds, and what a lender can take if you miss payments.
This guide covers both loan types the way Texas lenders actually use them. It also covers what happens under Texas law if a loan goes unpaid.
Table of Contents
What Makes a Loan Secured vs Unsecured
A secured loan is backed by an asset you own, like a car or a savings account. An unsecured loan relies only on your credit and income. No property is pledged against it.
See how installment loans work from start to finish in Texas for the full picture.
Common Collateral for Secured Installment Loans in Texas
Texas lenders most often accept a vehicle title as collateral. Some also accept savings accounts, CDs, or other personal property. The exact list depends on the lender, not a statewide rule.
FACT
Secured loans require collateral (such as a car or property), which usually results in lower interest rates and higher approval chances.
Why Secured Loans Often Cost Less and Approve Faster
Secured loans usually carry lower interest rates than unsecured ones. Collateral lowers the lender’s risk, so they can offer better terms. Approval can also be easier, even with a lower credit score.
Your approval speed can still depend on how your credit score affects approval on a Texas installment loan.
What Happens If You Default on a Secured Loan in Texas
Under Texas Business and Commerce Code Section 9.609, a lender can repossess collateral without going to court. This is called self-help repossession. The lender cannot breach the peace to do it, meaning no forced entry or physical force.
If the sale of the repossessed item does not cover your full balance, you may still owe the difference. This is called a deficiency balance.
FACT
Licensing Applies to Both Secured and Unsecured Loans
Every legal consumer installment lender in Texas must be a licensed lender, whether the loan is secured by collateral or not. State law requires these licenses to protect consumers and enforce state rules. This legal requirement applies regardless of whether you put up an asset as security.
State law sets rate caps by loan amount for both loan types. Collateral can change your rate within that cap. It does not let a lender charge above the legal limit.
Can You Switch From Unsecured to Secured Later?
Some lenders let you refinance an unsecured loan into a secured one. This can lower your rate if you now have an asset to pledge. It is a separate agreement, not an automatic change.
Ask your lender directly, since this option is not standard everywhere. Refinancing also resets your loan term. Weigh the lower rate against a longer repayment period first.
What Happens If You Default on an Unsecured Loan
There is no property to repossess on an unsecured loan. But the lender can still send your account to collections. It can also sue you for the unpaid balance.
A missed payment on either loan type can lower your credit score. The difference is what the lender can physically take, not whether your credit is affected.
Which One Costs Less Over the Life of the Loan
A secured loan usually costs less in total interest, given the same amount and term. This is because the lower rate offsets the risk of losing collateral. An unsecured loan costs more but keeps your assets out of reach.
Check what an installment loan really costs once fees are factored in for the real numbers.
How to Decide Between Secured and Unsecured in Texas
Choose secured if you have an asset you’re comfortable risking and want a lower rate. Choose unsecured if you would rather pay more in exchange for keeping your property fully protected.
If approval worries you, why installment loan applications get denied in Texas is worth reading first.
Frequently Asked Questions
Is an installment loan secured or unsecured?
It can be either. The loan type depends on the lender and whether you pledge collateral. Auto loans are usually secured, while many personal installment loans are unsecured.
Can a lender repossess my car for an unpaid personal loan?
Only if that loan is secured by the car. On an unsecured loan, there is no collateral to repossess, though the lender can still pursue the debt other ways.
What happens if I default on a secured loan in Texas?
The lender can repossess the collateral without going to court, under Texas Business and Commerce Code Section 9.609. If the sale does not cover your balance, you may still owe the difference.
Is a secured loan easier to get approved for?
Often, yes. Collateral lowers the lender’s risk, so approval standards can be more flexible. This can help borrowers with a lower credit score qualify.
Does an unsecured loan hurt my credit more if I miss a payment?
Not necessarily more than a secured loan. Both loan types can lower your credit score after a missed payment. The real difference is what the lender can take, not the credit impact.
What can be used as collateral for an installment loan in Texas?
A vehicle title is the most common option. Some lenders also accept savings accounts, CDs, or other personal property. This varies by lender.
The Real Trade-Off Between Secured and Unsecured
Secured loans usually cost less and approve faster, but they put an asset on the line. Unsecured loans cost more on average, but nothing gets repossessed if you fall behind.
Under Texas law, a secured lender can act quickly to reclaim collateral. Knowing that upfront helps you pick the loan type that fits what you can afford to risk.
Kul Deep
Kul Deep is a professional content strategist at Texo Finance. He is a finance expert who plans and produces content across various financial topics.