Secured Vs Unsecured Loans: Which One Should You Opt For?

Personal loans are a boon when you need immediate financial help. Nowadays, there are many kinds of loans available in the market. However, they are largely of two types—secured loans and unsecured loans. To put it simply, a secured loan is like a mortgage loan. In this case, you have to furnish an asset as a security for the loan. In contrast, unsecured loans do not need any asset as collateral. That is why secured personal loans are less risky for the lender than unsecured personal loans, even though the interest rate for the latter is higher.

Once you decide to take a loan, you must figure out whether you want to take a secured personal loan or an unsecured personal loan. But first, it is important that you understand how they are different.

Presence of Collateral

A secured loan always needs collateral. The loan is dependent on the valuation of collateral. The implication is this: If you fail to repay the loan, then the lender can confiscate the property and take possession of it. So, the risk for the lender is lower. Thus, it is easier for a customer to get a secured loan. Car loans, home loans, and loan against property all fall under this category.

 Unsecured loans are collateral-free loans. Your credit score and income play important roles when you apply for unsecured loans. The lender has to believe in your creditworthiness and ability to repay before sanctioning the loan. Examples of such loans include personal loans, student loans, and credit card loans. So, even if you are unable to repay the loan, the lenders cannot take away your property to recover the dues.


The hardest part of a loan is the repayment process. Borrowing above your capacity is not at all advisable. So, think well and review your finances before you take any loan. 

If you have many loans to repay, pay off the secured loan first. Say, you have two loans running – a car loan and a personal loan. In this case, it is better to repay the car loan first. You can lose ownership of the vehicle if you do not pay within the given time. 

Remember, if you fail to make timely payments, you can land up in deep debt. This is because of the high interest rates on an unsecured loan.

Interest Rate

A secured loan has a lower interest rate. This is because it is protected by something valuable like property. This also reduces the risk for the lender. Thus, you can get a sizeable amount as loan when it is secured.

Unsecured personal loans attract a higher interest rate and usually come with a tight borrowing limit. These days both banks and non-banking financial companies (NBFCs) offer competitive unsecured loans interest rates. It would be wise to compare the rates offered by various lenders before you choose one. NBFCs such as Bajaj Finserv have a smooth loan approval process along with flexible tenors.

Summing Up

Before taking an unsecured personal loan, do your homework. Loans are always a liability so it is better to look before you leap. Plan your finances well and cut down on unnecessary expenses. This will go a long way in helping you to pay off your equated monthly instalments with ease.

Also, do not forget to compare the rates across lenders so that you get the best rate. NBFCs such as Bajaj Finserv have pre-approved offers for personal loans, home loan, business loans, and other financial products. This helps to simplify the loan availing process and saves time. Just share a few basic details and check out your pre-approved offer.

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