Secured Loan vs Unsecured Loan: Know Difference or Which is Better?

 If you have taken a loan, then you may have an idea that there are two types of loans. It is either secured or unsecured. 

If you want to know the differences between these two loan types, then this post on secured loan vs unsecured loan is here to help you. Read on!

What is a Secured Loan?

Secured Loan vs Unsecured Loan – Unlocking the Differences 

As the name suggests, a secured loan is a type of loan that is protected by an asset. In other words, you need to pledge something to avail a secured loan. The collateral that you may keep could be anything from a car to home and more. The lenders keep their deed unless the loan gets paid in full. Stocks, bonds, and personal properties can also account as collaterals. 

Secured loans are availed when you want a large amount of money. Lenders offer you higher amount of money only when you pledge something. It provides the lenders with the assurance that you will repay the loan.    

The risk with the secured loan is that if you are unable to pay the loan, then the lender can liquidate your asset to recover the amount. 

What are The Benefits Of a Secured Loan?

• Comes with a lower interest rate as you have already kept a security 
• You get to enjoy a higher borrowing limit 
• You can repay smaller EMIs as you can get longer repayment tenor 

What are The Best Examples Of a Secured Loan?

• Home loans 
• Home equity lines of credit 
• Auto loans

What is An Unsecured Loan?

As the name suggests, an unsecured loan does not need you to keep anything as the collateral to secure the money. The loan gets approved on the basis of your creditworthiness. It is your credit score, meeting lenders’ eligibility norms and others. The interest rates charged on unsecured loans are higher. It is because lenders run the risk of not being paid in full or on time. If you can’t avail an unsecured loan owing to a bad credit score, then you can go for a secured and low interest personal loan. All that you need is pledging something that your lender can consider as worthy. 

What are The Benefits Of an Unsecured Loan?

• Less risky as there is no danger of losing your assets if you fail to repay on time
• More flexibility in terms of approvals and disbursements
• Repayment tenor of up to 5 years so that you can repay the loan quickly 
• The loan amount could be higher if you have maintained a robust credit score 

What are The Best Examples Of an Unsecured Loan?

• Personal loans 
• Credit cards
• Personal lines of credit 
• Student loans
• Home improvement loans 

Which is Better – Secured or Unsecured Loan?

You are now aware of the basics between secured loan vs unsecured loan. 

But, which is the best type if you wish to avail of a loan? 

The answer to this is – both are good to go. Yes, it all depends on a borrower’s profile. 

If someone doesn’t have a robust cibil score, then he may like to go for secured low interest personal loan. 

On the other hand, a borrower with a higher credit score may not have anything to pledge and still want to avail the loan. 

In this case, he may find the unsecured loan facility as ideal.