Secured Loan vs Unsecured Loan: Understand the Difference

We have a number of needs in our everyday lives for which we may require financial help. For women, this can mean anything like buying a house or a car, etc. So, learning about loans is also as important in order to make an informed decision.

Generally, there’s confusion as to which type of loan for women is best suited. What is the difference between a secured loan and unsecured loan? Let’s deep dive into understanding Secured Loan vs Unsecured Loan to get rid of these dilemmas.

What is Secured Loan vs Unsecured Loan?

Secured Loan:

A secured loan is a type of loan where you borrow money by using your asset as a collateral against loan. The asset could be your house, car, or savings account. The lender holds onto this collateral as a security, which means that if you can’t pay back the loan, they can take your collateral to get their money back. These loans usually have lower interest rates because the lender has less risk since they can use the collateral to recover the loan amount.

Characteristics of Secured Loans

• Requires collateral.
• Interest rates are usually cheaper since the lender is willing to take lesser risks because the collateral is highly secure.
• Loan amounts may be bigger because the borrower has the collateral as security.
• You can get a loan with low credit score you can get a secured loan as you are pledging a collateral.

On the other hand, with secured loans you can lose your collateral in case you are unable to make the repayments. It usually takes time to process these loans because the initial valuation of the collateral is also considered.

Types of Secured Loan: 

– Home Loan, 

– Vehicle Loans: A loan to buy a car or other vehicle.

– Home Equity Loans: Borrowing money using the value of your house.

– Secured Personal Loans: A loan where you use something valuable, like a car, as security.

-Student loan

Unsecured Loan:

An unsecured loan means the borrower doesn’t have to use an asset like a car or house as collateral. But what actually happens is that the lender relies on the borrower’s creditworthiness and promises to pay. In case of default, the lender can only sue the borrower for the money as there is no collateral against your loan.

Characteristics of Unsecured Loan

• It is flexible in the sense that the borrower is not required to provide any form of collateral.
• Interest rates are often higher since there is no collateral backing
• The application and approval process for unsecured loans is generally quicker and less complicated as there is no need to assess the value of the collateral.
• Requires a higher credit rating to approve loans.

Types of Unsecured Loan: 

– Personal loans, 

– Credit cards, 

– Student loans,

– Medical loans,etc

Which one to choose – secured vs unsecured loan?

Let’s look at the difference between secured and unsecured loan

Aspect	Secured Loans	Unsecured Loans
Credit Score	Has a flexible credit score qualification criteria	Requires high credit score
Suitable for	Who can provide collateral	Those who can’t offer collateral
Urgency	Takes longer due to collateral approval.	Better for urgent needs due to quick approval.

So, this is the difference between Secured and Unsecured loan.

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Ideally, you should plan and invest for your goals in order to avoid any financial stress. You can plan & invest for your goals with Lxme – an app for investment for women as we offer goals and time-based mutual fund portfolios that are well-researched, diversified, and curated by experts.

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