Nowadays, the options of secured and unsecured loans are available in India. When it comes to availing secured or unsecured loans, you may have some questions which one to choose. Read on and know more about secured loan vs unsecured loan!
What are
secured loans?
Secured loans come with
collateral when you apply for it. One of the best examples of secured loans is
home loans. Till the time the loan gets paid, the collateral is kept with the
lender. It could be tangible assets. If you don’t pay the secured loan on time,
then the lender has the right to liquidate the collateral. In the case of
secured loans, the rate of interest and processing fees are lower. On the other
hand, tenure is longer.
What are
unsecured loans?
As the name suggests,
unsecured loans mean that there is no involvement of assets or collateral.
Unsecured loans are given on the basis of your creditworthiness. If your credit
score, income and repayment history is good, then you can get the loan
approval. In this case, the rate of interest charged may be lower, and if these
aspects are not in great shape, then you may have to pay higher interest rates.
The rate of interest is higher as there is a great risk of defaults. The best
example of unsecured loans is an instant personal loan.
How to choose
between the secured and unsecured loans?
Be it secured loan vs
unsecured loans, you can decide on one based on various parameters.
1)
The collateral
When you apply for a secured
loan, then the collateral is the key component. You may pledge the home to
avail funds. Sometimes, lenders may come with a minimum value for security for
which they don’t accept security. The value of the security will be higher than
the loan amount offered. As a result, you should decide whether to pledge the
assets to you. If you wish to pay a lower interest rate and get a longer
tenure, then the secured loans with collateral are the best option.
2)
The credit score
If you wish to apply for a
loan that is security free, then you need to have a higher credit score. It is
because it is what is considered as the mirror of your creditworthiness. A credit score of 750 or more is
considered the best for the loan approval at a lower rate. You can do that by
repaying your loan EMIs and credit card outstanding on time. On the other hand,
if you have a secured loan to apply, then your cibil score and asset are considered
vital parameters. Hence, no matter what type of debts you go for, if your
credit report has some flaws, then you may not get the loan approval swiftly.
3)
Your
requirements
A secured home loan comes
with a tenure ranging up to 25 years. Unsecured loans, on the other hand, are
credited based on your credit score and income. Thus, the tenure and the loan
amount will be lower and shorter in case of unsecured loans. Thus, while
selecting a type of debt, you should consider your needs and pick one matching all.
Example – expanding your business with an unsecured loan like the instant
personal loan is a good idea. It gives you the capital to run the show, and you
can also enjoy tax benefits.
Understanding the discussed aspects can help you choose between secured loan vs unsecured loan.
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