Avail Instant Personal Loans ✓ Loan up to 50 Lakhs ✓ Quick Disbursal ✓ Minimum Documentation!

When one is looking to borrow money, they can either apply for a secured or an unsecured loan. A secured loan is considered to be a better option than its collateral-free counterpart as one can avail the same easily and that too at a lower rate of interest. That is the case because the collateral that must be offered at the time of applying for a secured form of loan brings down the overall risk attached to the borrower. This is exactly what makes a secured loan a cost and time-efficient option. However, it must be noted that there is a downside to it. The negative in question is the fact that the lender can take possession of the collateral asset if the borrower is unable to repay what he or she owes the institution.


These are only some of the differences between a secured and an unsecured loan. There are several other ways in which the two are very unlike each other. This article will take its reader through some of the key distinctions between a secured and unsecured form of a loan, so that they can decide as to which one they should go for.

What is a Secured Loan?

A secured loan is a form of a credit advance that is granted by banks to the common populace of India. But, they are given on the condition that the borrower offers up something that has a market value or can be classified as an investment as collateral. They are presented as collateral in order to give the lending institution a way of recovering what they lent if the borrower fails to pay on time.

Sometimes, the borrowers may still owe money to the likes of the lending institutions, even if their collateralized property has been repossessed by the lenders. Lenders tend to sell the property and use the money to close the loan account for good. If the repossessed property’s market value falls short to cover the total outstanding loan amount – the borrower will need to pay the rest out of their pocket. However, this is considered to be the only major minus point of secured monetary advances, otherwise they are considered to be a better option than an unsecured loan in many ways. Some of the most popular kinds of secured loans are car and mortgage loans.

One can also apply for secured or unsecured loans via Finserv MARKETS, a portal which helps people secure credit advances such as home loans, business loans and loans against properties, among others.

What do you Mean by an Unsecured Loan?

An unsecured loan, unlike its secured counterpart, is not backed by any form of security. Due to that very reason, if a borrower defaults on such kinds of loans, the lending institutions cannot take possession of their property to close the loan account. Credit Cards, Student Loans and small-sized collateral-free personal loans are merely a handful of examples of unsecured forms of credit advances. These days, almost every Indian financial institution offers such kinds of advances to those who are in an urgent need of money. All one needs in order to avail a collateral-free personal loan, for example, is a source of stable income and a healthy credit history.

What are the Other Differences Between a Secured and an Unsecured Loan?

In addition to their very nature, secured and unsecured loans differ from each other in terms of the repayment tenor length and maximum available amount as well. Some of the other key differences between the two are mentioned below:

Other Distinctions Between a Secured and a Unsecured Loan




Loan Amount



Collateral Requirement


No requirement as such


Anywhere 15 - 30 years

Up to a maximum of 5 years

Rates of Interest

Low as the presence of a security brings the overall risk attached to the lender down

High as the collateral-free nature of the lending option implies that the recovery of the sum owed may prove to be a trick process in case the borrower is unable to honor his or her credit related obligations


An exhaustive list of documents will be required

Negligible amount of documents required. In some cases, one may not even need to submit any credentials other than their Aadhaar-related information

Disbursement Speed


Fast. In some cases, the money reaches the applicant within a matter of minutes.


Mortgage Loans,Housing Loans, Automobile loans, among others.

Personal Loans,Unsecured enterprise loans and purchases credit cards, among others.


Difference between secured loan and unsecured loan


Secured loans are low-risk activity for lenders as they can recover unpaid dues in case of loan defaults from the pledged asset or collateral. That is the primary reason why these types of credit are called secured loans.

On the other hand, while unsecured loans are low-risk for the borrower, it entails a higher risk for lenders if it turns out to be a bad loan.


Generally, in case of a secured loan, usage of the loan money is restricted to the nature and purpose of the loan. For example – a home loan can only be used for purchase of a home; a car loan for buying a car. However, in case of gold loans and loan against property, one has the flexibility to use the loan money for any purpose.

In case of a personal loan there are no restrictions on how you want to use the money. You can spend the money on renovation, furniture, shopping, holiday or any other emergency purpose.

Loan value and tenure

When we are choosing between secured loan vs unsecured loan to meet our funding needs, we also have to keep the loan value in mind. With secured loans you can obtain a higher amount of loan as you are pledging an asset as collateral against the loan. Also, with secured loans you can take the loan for a longer tenure.

An unsecured loan such as a personal loan is available up to the tenure of 5 years while secured loans such as a home loan can last for 20-25 years.

Credit score

Your Credit Score, income, repayment history and other factors plays an important role when you apply for an unsecured loan. But in the case of secured loans where you pledge collateral, lenders don’t give much weightage to credit score, income and other factors.

Interest rates

Generally, interest rates are lower for secured loans compared to unsecured loans. Lenders charge lower interest rates on secured loans because a collateral is pledged in order to avail the loan.

Once you have understood the difference between secured and unsecured loans, you are the best person to understand which type of loan suits you best based on your requirements. Whether it’s an unsecured or secured loan, with smart lenders you can get approval within minutes and disbursal within 24 hours.

An instant personal loan not only helps you meet your immediate financial requirement with minimum documentation and formalities, but it also helps you build and improve your credit score and history. With attractive interest rates and flexible repayment options, now is the best time to take benefits of a personal loan.

Today, you can also obtain an unsecured business loan to build new infrastructure, upgrade machinery and expand your business. You can avail a Bajaj Finserv Business Loan on Finserv MARKETS up to Rs. 30 lakh and get approval under 3 minutes. You can also apply for SME/MSME business loans on Finserv MARKETS.

Quick Links

Related Articles

Personal Loan by City