What is the Difference Between Secured and Unsecured Personal Loans?

Nowadays, taking a loan is not a difficult process, but you must understand the difference between secured and unsecured personal loans.

Secured Loan

A secured loan requires collateral or any security against the loan amount. This can be gold or property to get the desired amount as a loan, but that is based on the value of the given asset. The lender or financial institution will hold all ownership rights on the submitted asset until the loan is paid.

Unsecured loan

Unsecured loan is also known as a ‘loan without documents’. An unsecured loan does not require any collateral, but this type of loan typically comes with a high-interest rate. Loans such as credit cards, personal loans, and student loans come under this category.

Difference between secured and unsecured loan

• The major difference is between an unsecured and secured loan is the collateral requirement. A secured loan requires an asset as collateral, but an unsecured loan doesn’t need it.
• The rate of interest is another difference between secured and unsecured loans. A secured loan has a low-interest loan, but unsecured loans charge high-interest rates.
• Secured loans are easy to get approved, and at the same time, unsecured loans are not get approved easily.
• In the case of an unsecured loan, the loan approved by the lender is based on the applicant’s credit score and repayment capacity. However, in secured loans, the loan approval decision is based on the pledged asset’s value.

Regardless of the loan is secured or unsecured, every loan management needs efficient repayment analysis to ensure that the credit is handled smoothly without credit score being negatively affected.

Must Read: 5 Things That Expedite Your Personal Loan Application Towards Approval