Differences Between Secured and Unsecured Personal Loan.

Posted on Tuesday, May 2nd, 2023 | By Indusind Bank

A personal loan is an excellent way to finance important expenses such as home renovation, wedding expenses, unexpected medical bills, and more. There are two types of personal loan options available: secured and unsecured. It’s important to understand the differences between these two types of loans before deciding which one is right for you. 

Secured Personal Loan 

Secured personal loans are loans that require collateral or a guarantor to get funds. This collateral can take many forms, such as a home, car, or other valuable assets. The lender has the right to take possession of the collateral if the borrower fails to make payments on the loan. This is why secured loans typically have lower interest rates and higher borrowing limits than unsecured loans.  

One advantage of a secured personal loan is that you can usually borrow more money than with an unsecured loan. This is because the collateral provides the lender with security in case the borrower defaults on the loan. Another advantage is that secured loans typically have lower interest rates than unsecured loans. This is because the lender is taking on less risk by having collateral as a backup. 

However, there are some downsides to secured loans as well. One of the biggest concerns associated with a secured personal loan is that you could lose your collateral if you default on the loan repayment. This means that you need to be very careful when deciding to take a secured personal loan. Additionally, the application process for a secured loan can be more complicated than for an unsecured personal loan, as the lender will want to inspect and evaluate the collateral before approving the loan. 

Unsecured Personal Loan 

An unsecured personal loan is a loan that does not require any guarantor or collateral. This means that the lender cannot take possession of any assets if the borrower defaults on the loan. Because of this, unsecured loans typically have higher interest rates and lower borrowing limits than secured loans. 

One advantage of an unsecured loan is that you do not have to put up any collateral to get the loan. This means that if you default on the loan, you will not lose any assets. Additionally, the application process for an unsecured loan is often simpler and faster than for a secured loan, as there is no need to evaluate collateral. 

There are some downsides to unsecured loans as well. One major disadvantage is that they typically have higher interest rates than secured loans. However, some leading banks like IndusInd Bank offer best-in-class interest rates on instant personal loan at minimal processing fee. Also, IndusInd Bank Personal Loan application is 100% paperless making it more convenient for the customers to get funds quickly. 

Which Loan is Right for You? 

Deciding between a secured and unsecured personal loan depends on your individual circumstances. If you have valuable assets that you are willing to put up as collateral, a secured loan may be the right choice for you. This is especially true if you need to borrow a large amount of money. However, if you do not have any valuable assets to use as collateral, or if you are uncomfortable risking losing them, an unsecured loan may be a better option. 

Additionally, you should consider the interest rates and fees associated with each loan. While secured loans typically have lower interest rates, they may come with higher fees, such as appraisal fees or origination fees. Unsecured loans may have higher interest rates, but they often come with lower fees. 

Finally, you should consider the length of the loan and the repayment terms. Secured loans are often for longer periods of time, such as five or ten years, while unsecured loans may have shorter repayment periods, such as three or five years.  

Conclusion 

In conclusion, the main differences between secured and unsecured personal loans are the presence or absence of collateral, the interest rates, and the borrowing limits. While secured loans typically have lower interest rates, they also require collateral, which can be a risk if you default on the loan. An unsecured personal loan does not require collateral, but typically has a lower borrowing limit than a secured personal loan. Ultimately, the decision between a secured and unsecured personal loan will depend on your individual circumstances and financial goals. Do your research and compare various personal loan offers by different lenders before making a decision. 

If you’re looking to apply for an unsecured instant personal loan at best-in-class rates, then do check out IndusInd Bank Personal Loan that is mindfully designed to fit into the varied needs of individuals as per their lifestyles. With IndusInd Bank Personal loan, you get to enjoy instant approval, quick disbursal, and flexible repayment tenure options. That’s not all, its application process is 100% paperless with minimal or low processing fee*. 

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Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and informatio