Secured Loans or Unsecured Loans? Find out Here!

Secured Loans or Unsecured Loans? Find out Here!

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A loan provides access to immediate funds. The obtained capital may be used to pursue higher studies, purchase expensive commodities, start a business venture, pay medical expenses, or take a dream vacation, besides many others. Those in a dire need of funds may, therefore, avail of a loan from a bank or a Non-Banking Financial Company (NBFC) and meet their financial goals.

To make a well-informed borrowing decision, it is imperative to know the various quick loan options available in the market. Two basic types of loans are secured and unsecured loans.

About secured loans

When an asset,such as a vehicle or property, is pledged as security against the loan, it is known as a secured loan. This asset acts as collateral against the loan. The lender holds the title or the deed to the asset, and places a lien on the asset till the loan is repaid completely. If the borrowerfails to repay the loan amount, the lender seizes ownership of the collateral and uses the proceeds of the sale of the asset to recover the outstanding debt amount.

It is important to understand the features of secured loans while borrowing such a loan. The rate of interest is low as lenders are assured of the creditworthiness of the borrower.Besides, applicants may apply for a greater loan amount in case ofa secured loan. This is because the asset pledged as security generally has a value equal to or greater than the borrowed amount. The lender therefore is assured that the borrower will do everything in his power to repay the loan and seek repossession of the collateral.

Understanding unsecured loans

An unsecured loan does not require any collateral as security against the loan. Such a loan is issued solely on the basis of the creditworthiness of the borrower. This type of loan generally requires the need of a guarantor, who assures to repay in case the borrower defaults on the loan repayments.

While comparing both the loan options, it is imperative to identify the features of an unsecured loan. Borrowers may get instant loans in case of an unsecured loan, due to lesser paperwork. However, the rate of interest levied on unsecured loans is higher than that on secured loans. This is because lenders assume a high risk in the case of unsecured loans. If the borrower fails to repay, the bank or NBFC will suffer a major loss. Besides, it is imperative that the borrower has a good credit history in order to obtain an unsecured loan approval.

Secured loans vs. unsecured loans: Making the right choice

Both secured and unsecured loans have their own set of advantages and disadvantages. Borrowers may weigh the pros and cons of both the options and make a choice based on their needs and financial position.For added convenience, applicants may apply for either a secured or unsecured loan online. The online loan approval is a quick and flexible option.