Business Loan

All things you need to know about Secured vs Unsecured Business Loan


Personal loans were once the final resort for urgent financial problems. Despite the COVID-19 impact, it is now one of the consumer loan types in India that is expanding the quickest. Personal loans have not been significantly affected by the sluggish economy brought on by the pandemic, even though most credit categories have seen an increase. Except for personal loans, key credit divisions all experienced a moderating in credit growth, according to the Economic Survey 2019–20. A personal loan is frequently what saves people whose salaries were reduced and payments were postponed. According to the Reserve Bank of India (RBI), personal loans today account for 28% of total bank credit. There are two primary forms of personal loans that you may choose from when looking for financing: secured personal loans and unsecured personal loans.

Secured Business Loan

To get a secured loan, you must give an asset that may serve as collateral to an insurance company. A secured personal loan is a loan that is secured by an asset for the amount you borrow. Your asset will no longer have a mortgage on it once you have paid back the complete loan amount, so you won’t have to worry about it anymore. Your asset is essentially retained by the bank up to the point at which your loan is not repaid. If you default on the payment, the lender may seize your asset.

Features of a Secured Business Loan

Interest rate: Since collateral has been pledged and there is little danger, interest rates are low.

Accessibility: No Problem

Term Length: Short to Long

Loan size: The loan amount is fixed as per the value of the collateral and can be quite big.

Processing period Verification procedures lengthen it

Low chances of rejection, subject to lending requirements and the availability of assets to use as security for the loan.

Types of Secured Loans in the Market

Home loans are among the most popular bank lending products. The new home you are taking a loan for in this case is the security.

Gold Loan: People who are in urgent need of cash can use their gold as security to get a bank loan that is about equal to 75% of the gold’s worth.

Auto Loan: For many people, getting a car loan is the next logical step after paying off their house loan.

Unsecured Loans

Personal loans that are not backed by collateral are not insured. Compared to secured personal loans, the interest rates for these loans are often higher. For college loans, credit card debt repayment, etc., unsecured loans are used. Unsecured personal loans often have higher interest rates. Both the principal amount and the payback period may be less than they would be for a secured loan.

Features of Unsecured Loans

The perks of an unsecured personal loan are considerable. Since they are less risky than secured loans, you won’t have to worry about losing your assets. Since there are no assets to consider and process as security for an unsecured loan, it is easier. Its easy accessibility is one of its main benefits. However, you do need a solid credit history and score. Before applying for a loan, you may quickly and easily check this information online.

Types of Unsecured Loans

One of the most widely used types of unsecured loans is a credit card, which bills you once per month and charges interest on any unpaid amount.

Personal Line of Credit: While credit cards and lines of credit are comparable, lines of credit often have much lower interest rates. They give a pre-approved credit limit that you are free to utilize in any way you see fit.

Personal Loans: These loans are for your use and may be used for a variety of things, including education, travel, medical expenses, and phone bills. The loan amount depends on your credit history and can range from a few thousand rupees to several lakhs.

Points to Consider before taking a Secured Loan or Unsecured Loan

If your CIBIL score is good enough, as mentioned above, you can choose an unsecured loan. This implies that by limiting the number of unsecured loans you apply for, you should keep your hunger for them low. Even though unsecured loans are widely accessible, it is advisable to practice moderation. Your credit score will rise if you repay unsecured loans on time and with discipline. It is advisable to evaluate the amount of your loan debt.

While applying for an unsecured loan, you should not promise collateral that is worth more than the bank requires. You can choose to pledge two or more minor assets that are equal to the amount of your loan. If you have enough liquid assets, collateral, and backup assets, you may apply for a secured loan because the interest rate will be cheaper. For instance, you can borrow money against a fixed deposit for a 1% to 2% premium to the interest rate on the FD.

For long-term loans, banks typically look for collateral. Banks give personal loans without asking for any security for short-term loans, which are defined as loans between six months and two years. Banks base their decision on your ability to repay the loan on your income. There may be pre-payment fees and personal loans have higher interest rates. Banks might easily grant unsecured loans to account customers with solid loan histories and CIBIL scores.

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