Loans are available in two different categories: Secured and unsecured loans. Whether you want an HDFC Bank personal loan or an ICICI Bank secured loan you must need to know the difference between a secured and unsecured one. Understanding between these two aspects of loan will give you an idea of what is better for your financial health and how you can easily tackle various types of financial aspects.
Here, in this loan, you will get to know the basic difference between secured and unsecured loans:
Secured Loan
A secured loan is a type of loan that requires collateral which is an asset you have hold in the form of property, gold, vehicle or any precious things. Under secured loans, you can borrow car, home, mortgage, business, equity, etc. The interest rate is lower on this loan as compared to an unsecured loan. If you want to borrow a large amount of funds, then this loan is very beneficial; which comes with several benefits as your loan is protected by the collateral for the financial organization.
Several other loans come under this segment like stock, bonds etc.
You need to submit sales deed or property papers, and vehicle documents along with other documents to show that you are applying for the secured loan. A good credit score is needed to obtain a secured loan to meet your financial obligations.
There are several types of secured loans you can easily get from your lender:
- Home loan
- Credit line
- Mortgage loan
- Equity Loan
- Vehicle loan
- Business Loan etc
Specifications of Secured Loan
In a secured loan, you will get several benefits like:
Low rate of interest: You will get the benefit of a very low rate of interest which will be very beneficial in the long run.
Higher borrowing limit: You can easily borrow any amount that comes under the financial limit to make your dreams come true. It is because the loan has collateral value or security deposit.
Longer repayment terms: A secured loan offers longer repayment tenure so that you can easily repay your debts on time with ease. There is no risk to the lender in this loan as this loan is secured by collateral.
Easy disbursal of money to the account: Your money will be disbursed into your account very easily due to the secured nature of this loan. Banks know that their money is safe due to the collateral amount or asset they have submitted.
Unsecured Loan
It’s a type of loan that is not backed by any type of security just like we have seen in the secured loan segment. You don’t need to submit any form of security in cash or other forms. The financial organizations have followed the strict guidelines for loan disbursal and approval as the loans are not backed by any sort of security as they take it risk for them. The interest rate is higher in this loan and the term of repayment is very less. You need to pay your debts on time otherwise your bank may reject your loan application and proceed to the next eligible candidate. Whether you want to HDFC Bank personal loan or an NBFC financial assistance, credit card, student loan etc, all you need to submit the required documents and follow the terms of the lender. You should maintain a fine balance between your financial budget and personal life so that you can easily pay the loan on time. Your banking organization will ask you for a stable income or employment source, you need to submit the required documents on time failing which you can’t apply for the unsecured loan.
In getting an unsecured loan, you have to show your credit score, even you can get a good personal or student loan from your lender if you haven’t good credit. Some banks and lenders provide loans to the person with low credit scores too.
Examples of Unsecured Loan
- Credit Card
- Personal Loan
- Lines of Credit
- Student Loan
Specifications of Unsecured Loans
Higher interest: The interest rate is higher than expected due to the unsecured nature of this loan. You don’t need to submit any sort of collateral to your bank to purchase this loan.
Lower borrowing limit: The borrowing limit is very less as there is no collateral included in yoru loan amount.
Quick loan processing: You will get easy loan in very quick time. The processing time is much less as the banker doesn’t need to go through the collateral verification process. They need to verify your documents only.
Short Repayment Terms: Unsecured loans like personal loan and student loan have very shoerter repayment term as compared to secured one. Banks provide repayment tenure between 5-7 years.
Summary
There are two types of loan accounts: secured and unsecured loans. In the secure segment, you can get loans like home loan, car loan, bike loan, truck loan, mortgage loan, business loan, equity or bond loan etc. On the other hand, if you are applying your an unsecured loan, you will get the option of student loan, line of credit, credit card, and personal loan. Secured loan are backed by collateral while unsecured loan doesn’t need any sort of collateral value.
