7 Important Differences between Secured and Unsecured Personal Loans

25 Jan 2021

A loan is segregated into Secured and Unsecured Loan. The two are different and are based on various parameters. As the name indicates, secured loans are the ones wherein the bank or the lender asks for security or collateral. On the other hand, unsecured loans are the ones which don’t require any security. Let us have a glance at some of the major differences between secured and unsecured loans.

7 Differences between Secured and Unsecured Loans

Secured Loan

Unsecured Loan

Secured loans require the borrower to put an asset or collateral as security with the lender.

Unsecured loans don’t need security or collateral

Secured loans are less risky and hence the banks or other financial institutions granting this loan keep the interest rate low.

Since there is no security and the loan is unprotected, the interest rate of the unsecured loan is usually on the higher side.

The secured loan comes with a limitation of usage. For example, if you have taken a secured loan for buying land or house, then you can use the amount only for this purpose.

Unsecured loans come with no limitation. You can use this money to meet immediate financial needs.

When it comes to the repayment period, then secured loans comes with a longer repayment period.

On the other hand, unsecured loans don’t have an extended repayment period.

Secured loans are comparatively easy to obtain. However, the paperwork for these loans is very much, and the borrower has to furnish all documents to the bank

Since the asset does not protect the unsecured loan, it might take some time to get the unsecured loan approved.

Since secured loans demand the borrower to furnish collateral, in case of non-repayment, the lender has the right to seize the asset.

There is no such compulsion in an unsecured loan. However, the credit score falls drastically and it becomes touch even to get secured loans in future

The loan amount is high.

The loan amount is less.

Example: House Loan, Car loan

Example: Personal Loan

In the previous financial year, more than 34% of people in the USA took personal loans. The number comes to be around 83.5 million people which are more than the one-third population of the country. The most common reason for a personal loan was found out to be for vehicle-related expenses. 31% of people took the loan to meet their vehicle’s requirements. 26% of personal loans were taken to pay bills on time whereas 21% of people took personal loans in case of an emergency.

When it comes to genders, 36% of men took personal loans and the percentage came to be 33% in the case of women of all ages. Married people receive the highest amount of loan whereas divorced people take the least amount of loan.

Conclusion- Both these types of loans come with their own sets of benefits and drawbacks. However, it depends on the person what kind of loan he/she wishes to apply for. One needs to do a complete analysis of the interest rates, repayment period and other fees charged by the bank before applying for either type of loans.

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