Secured or Unsecured Loan: Which is the Better Choice?
finbud
1/28/2021
You may have received messages offering secured and unsecured loans, with promises of attractive interest rates or instant approval from various lenders. However, only a few people understand the fundamental differences between these two types of loans. Understanding the difference between secured and unsecured loans is an essential step toward financial literacy and can be crucial when you need quick access to funds during a financial crunch. Check here to get a Loan!
Secured or Unsecured loan
Secured loans need collateral as a guarantee against the lent money. The collateral can be any of the assets that belong to the borrower or it can also be fixed deposits and provident funds in some cases. This collateral is kept by the lender during the entire repayment tenure. In case the borrower fails to repay the loan in a fixed period of time, the ownership of the collateral is taken by the lender to recover the loan amount. Some of the examples of a secured loan are mortgage loans, home loans, and gold loans.
Whereas Unsecured loans do not require any collateral or security. These loans are approved and disbursed based on the borrower’s repayment capacity and debt-to-income ratio. However, the creditworthiness of the borrower is determined by their current income. The best examples of unsecured loans are online personal loans, instant loans, and same-day loans.
| Secured Loans | Unsecured Loans |
| You need to give collateral to avail this loan. | No collateral is required. |
| Processing wise it can take some time. | These are quick and instant loans. |
| Secured loans have low interest rates. | You need to pay comparatively higher rate of interest for unsecured loans |
| Secured Loans have higher borrowing limits. | Unsecured loans have lower borrowing limit |
| The ownership of the asset which is given as collateral is at risk. | No risk is involved. |
| The loan amount approval is generally 70% of the asset value which is given as collateral. | The loan amount approval depends on your repayment capacity (income) |
Which loan is best for you, a Secured or Unsecured loan?
If you need money and want to apply for a loan, you need to ensure that you are well aware of both secured as well as and unsecured loans. You need to make the right choice depending on your requirements, affordability, and needs. So, here are a few to help you choose the best loan for you. Whether you go for a secured loan or an unsecured loan like a personal loan, it is important to choose one that suits your requirements and which has the potential to fulfill them. Both secured and unsecured loans have different offerings and features. Understanding both loans is very important as it helps you to choose the best one for you. However, don’t forget to analyze your repayment capacity and affordability before applying for any of the loans.
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