Secured and unsecured loan

Borrowing practice is associated with human beings from the date of their first economic behaviour.

It is because- human wants are unlimited and they find it hard to satiate all their needs with the limited resources. With the Institutionalisation of borrowing pattern, two types of loans cropped up. The first one is the security based loans while the second type does not require any security to be approved. While the security based loans are widely known as the secured loans, the security free loans are the unsecured loans. Both the loans have their own unique selling propositions.

Secured loans are available when you pledge any valuable against the loan amount. You can pledge your home, commercial property, jewellery car etc. against the loan amount.

The loans offer you money according to the value of the pledged security. The payable rate of interest in case of secured loans is lower as the lender is assured regarding his investment. It means, in case of default, the lender has the right to repossess the pledged security to get back his money. The repayment tenure of these loans is longer and the repayment is done in form of equated monthly instalments.

On the other hand, unsecured loans never demand any sort of valuable to be pledged as security

against the loan amount. It is a fact that these loans offer lower loan amount at higher rate of interest for shorter repayment tenure. But, the advantages are the hassle free processing and absence of repossession risk. For unsecured loan approval, the credit score of the borrower is a deciding factor. Credit score is the statement regarding the past credit behaviour. As both the loans have their own set of advantages and disadvantages, you are advised to go for that option which suits your personal circumstances.