Question
Q: What is a secured vs. unsecured loan?
Answer
A:
Loans can be broadly classified into two types based on whether they require collateral or not: secured loans and unsecured loans.
Secured Loan
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Definition: A loan backed by collateral (an asset like property, car, fixed deposit, etc.) that the lender can claim if you default.
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Examples: Home loans, car loans, loan against property, gold loans.
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Interest Rates: Generally lower because the lender’s risk is reduced.
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Loan Amount: Usually higher since secured by valuable assets.
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Repayment Tenure: Typically longer terms available.
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Risk: If you fail to repay, the lender can seize and sell the collateral.
Unsecured Loan
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Definition: A loan given without any collateral or security. Approval is based on your creditworthiness and income.
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Examples: Personal loans, credit card debt, education loans (sometimes).
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Interest Rates: Usually higher due to increased risk for the lender.
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Loan Amount: Typically smaller compared to secured loans.
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Repayment Tenure: Usually shorter terms.
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Risk: No asset is at stake, but default affects your credit score and may lead to legal action.
Which is Better?
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Secured loans are ideal if you want lower interest rates and larger loan amounts and can offer collateral.
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Unsecured loans are good for quick funds without risking assets but come with higher interest and stricter eligibility.
If you want personalized advice on choosing the right loan type, feel free to reach out!
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.By Advocate BK Singh
(Delhi High Court)