Personal Loans - Explaining Secured and Unsecured Personal Loan
Noida, Uttar Pradesh 201301

LoanAdda Logo

Apply Personal Loan Online

Financial Blog


recent posts

Personal Loans - Explaining Secured and Unsecured Personal Loan

Personal Loans - Explaining Secured and Unsecured Personal Loan

posted on 2020-09-11 06:06:45 by Admin

Whether you want to pay your medical bills or work out your personal requirements, before applying for a personal loan, it is important for the borrowers to understand how many types of personal loans are available and what is the difference between each of them. 
Personal loans are basically categorised into two types - Secured and Unsecured Loans. Both of which are associated with some pros and cons. This differences in both the types affect your terms of repayment, rate of interest and borrowing limit, etc. In order to achieve steady financial health, it is important for any borrower to gain maximum financial literacy which is why, in this blog, we will talk about the differences between the two.

Secured Personal Loan

When you apply for secured personal loans online or in person, you are required to put an asset as a collateral or security to back it. These assets may include a car, home, bonds, personal property, etc.
Since a secured loan comprises a large amount of money, a lender requires some kind of security provided by the applicant as a promise to repay the amount. 
The risk involved in this type of loan is that the sender can sell the collateral off in case the loan is not repaid.

Features of Secured Personal Loan

  • It is available for all including salaried individuals, non-salaried individuals, proprietors and corporate businesses.
  • Interest rate is much lower as compared to other types of loans.
  • Timely repayment of this loan improves your credit score.
  • This loan also comes with the perks of longer repayment terms and higher borrowing limits.
  • Lenders can take over the possession of your assets in you fail to repay.

Unsecured Personal Loan

Unsecured loans are not associated with any security or collateral. They are the exact reverse of secured loans. Unsecured loans are risky for lenders because there’s no asset to recover the amount of the loan. This is why interest rates are usually higher for unsecured loans. In case you fail to make the repayment, the lender can’t repossess your property. 

The 5Cs of Unsecured Loan

While lending an unsecured loan, a lender considers 5 C’s of credit and believes that you can repay the loan because of your financial resources. 
  • Character: your credit score, employment history and references build up your financial character.
  • Capacity: your income and current debt reflect your capacity to repay the loan.
  • Capital: your money in savings and investment accounts make up your capital and make your financial position stronger.
  • Collateral: your personal assets such as a car, home and other properties show a stronger financial position.
  • Conditions: the terms and conditions associated with the loan.

Which is better for you - Secured or Unsecured Personal Loan?

When you apply personal loan, which one should you apply for? A secured or an unsecured loan? The differences are clearly stated above between the two. When it comes to choosing one over the other, there are a couple of factors that go into this decision. A secured loan tends to have lower interest rates and offers you a comparatively longer period of time to make the repayment. Moreover, a secured loan also offers higher borrowing limits hence enabling to you access more funds in one go. Applying for a secured personal loan is an easier and smarter alternative if you qualify for one.
To apply for personal loans, home loans, business loans, credit cards, visit Best assistance and guidance is just one call away.