Borrowing a loan has become common nowadays. If you are thinking of availing of a loan, you need to know the loan types. There are two types of loans – secured loans and unsecured loans.
A secured loan as the name suggests is being secured with an asset as a security.
You have to pledge an asset as collateral to avail a secured loan. Car loans and home loans are secured loans. An unsecured loan is a loan that is not backed by any security.
Personal loans are unsecured loans. Let us discuss the advantages and disadvantages of secured loans and unsecured loans to determine which one is better for you.
Advantages of secured loans
Since a secured loan is backed with security, you have the chance of availing it at a low credit score.
A secured loan is a low-interest loan as compared to an unsecured loan. This is again because of the collateral that you provide to the lender for the loan.
A secured loan helps in creating a strong credit profile.
If you go for a secured loan, i.e. if you provide security for the loan, you can avail of a higher loan amount than what you are eligible for.
Disadvantages of secured loans
For availing a secured loan, you need to submit your documents as well as the documents of the collateral. Too many documents and verification of the same takes a lot of time. It makes the loan application process time-consuming.
In case of default in repayment of the loan, the lender has the right to seize the asset you provide as collateral. Failing to repay a secured loan can also harm your credit score.
Advantages of unsecured loans
Paperwork is very less in an unsecured loan as you do not have to provide documents of any collateral security. The processing of a personal loan is faster and easier than other loans as it requires the least documentation.
It is very easy and quick to avail an unsecured loan. The unsecured loan approval process is quick, and the money is available immediately on loan approval.
It is easier to avail an unsecured loan from a bank or financial institution as it does not involve any collateral or guarantee protection. It is being issued based on your credit score.
There is no asset associated with the loan as security. In case of default in repaying the loan, the lender cannot seize your assets.
Disadvantages of unsecured loans
Unsecured loans are expensive loans. Personal loan interest rates are usually higher than other loan options.
Since these loans are not backed by any security, personal loan eligibility is also stringent. You must have a good credit score to avail an unsecured personal loan.
The presence or absence of collateral is the major deciding factor here. Now that you know the difference between secured vs unsecured loan, you can make a decision. Whichever option you go for, you should always research and compare the loan options available in the market before selecting one.
Bajaj Finserv brings to you pre-approved offers on its various financial products like personal loans, home loans, and many more. It is to simplify the loan procedures to make it less time-consuming.
You can check your pre-approved loan offer by sharing some basic details like your name and mobile number.
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