Perhaps you have received messages on your mobile phone about unsecured and secured loans, attractive interest rates or promises of an instant loan from one lender. Only a small percentage of people understand the differences between these loans. Knowing the differences between a secured and an unsecured loan can be a step toward financial literacy. It can also help you in a financial crisis when you need to borrow any of these loans.
Unsecured vs. Secured loan
As a guarantee of the loan amount, secured loans require collateral. You can use any assets or fixed deposits as collateral. You may also need provident funds and fixed deposits in some cases. The lender keeps this collateral throughout the repayment term. The lender can take the collateral’s ownership if the borrower fails to repay the loan within a set period. Mortgage loans, home loans, and gold loans are examples of secured loans.
Unsecured loans don’t require collateral or security. These loans are approved and disbursed according to the borrower’s ability to repay and their debt-to-income ratio. Their income determines the borrower’s creditworthiness. Online personal loans and same-day loans are the best examples of unsecured loans.
What loan is right for you?
You need to be aware of both secured and unsecured loans if you’re in dire need of cash. You have to choose the right loan based on your needs, finances and requirements. Here are some tips to help you select the right loan for you.
Your ability to provide collateral/guarantee: If you are looking for a bigger loan amount and you have assets say, land or any property which you can give as collateral, then you can go with a secured loan as you will you able to get the desired amount that too at a lower interest rate. If you’re unable to provide collateral, securities or an instant loan, you can apply for an unsecured personal loan if you need immediate funding.
You need a loan amount: For small amounts, you can always approach online lenders to get an instant loan, a personal loan, or a same-day loan. This option is best because there are no restrictions on how the money can be used, and you can access it online from your own home. You can apply for a secured loan if you require a larger loan amount but aren’t eligible for personal loans immediately.
Time frame in which you require money: Unsecured loan approvals are fast and don’t require collateral. Unsecured personal loans are the best choice for people who need quick funding. Secured loans are best if you have a plan and need money within 7-10 days.
It doesn’t matter if you are looking for a secured or unsecured loan, such as a personal loan. You need to find one that meets your needs and has the potential to fulfill them. There are many features and offerings that both secured and unsecured loans offer. It is important to understand the differences between secured and unsecured loans to choose the right one. Before applying for any loans, understand your affordability and repayment ability.