Secured and Unsecured Loans

Secured vs Unsecured Loans: What is the Difference?

Secured Loan vs Unsecured Loan

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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

PARAMETERS

SECURED LOANS

UNSECURED LOANS

Loan Amount

High

Low

Collateral Requirement

Mandatory

No requirement as such

Tenure

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

Documentation

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

Slow

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

Example(s)

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

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

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