Published on Feb 13, 2020Updated on Oct 19, 2026
A secured loan is typically a better option than an unsecured loan as it has easier eligibility criteria, has a lower interest rate and allows you to borrow a higher amount. The only downside is that the lender can repossess your property in case of default.
When you are looking to borrow money, you will have to decide whether to opt for a secured loan or an unsecured loan. If you are wondering what is the difference between the two – read on to find out, and we also offer a few tips on how to choose between them.
When a borrower opts for a secured loan, they need to pledge a valuable asset in the form of collateral. Collateral is required for secured loans such as auto loans or mortgage loans.
For instance, the vehicle itself is the collateral for a car loan. The different types of loans that require collateral are
Mortgage Loan: Loans taken to purchase a residential or commercial property require the borrower to pledge the property purchased as collateral. Similarly, a loan against property allows one to borrow a large amount of money by pledging an immovable asset such as a residential or commercial property as collateral.
When a borrower pledges a valuable asset to secure a loan, it is referred to as a secured loan. In case the borrower is unable to repay the loan, the lender has the right to repossess the pledged asset in order to recover their dues.
There are many examples of secured loans; loan against property and home loans are the most common ones. Certain loans, such as loan against securities require borrowers to pledge financial assets such as mutual funds, shares, bonds, etc. as collateral.
Borrowers opt for secured loans when they require a large amount at a lower interest rate and a longer tenure. The examples of secured loans are:
At SMFG India Credit, we offer loan against property and loan against securities to eligible borrowers at attractive interest rates.
A secured loan is a type of loan in which a borrower pledges an asset such as a car, property, or equity etc., against that loan. The loan amount made available to the borrower is usually based on the value of the collateral.
Even though lenders repossess the collateralized property, you may still end up owing money to them in some cases. The lender would sell the property and use the funds raised to square off the debt. Now, if the property’s market value turns out to be lower than the outstanding loan amount – you would have to pay the rest out of your pocket.
An unsecured loan is not backed by collateral. If you default on such a loan, the lender cannot automatically take possession of your property to repay the same. Credit cards, student loans, and small unsecured personal loans are a few examples of this type of loan. Personal loans without collateral are also widely available. You typically need a stable income and a healthy credit history to get an unsecured loan.
Must Read: What are the Types of Unsecured Loans?
The following table gives a rough idea about the basic differences between a secured and an unsecured loan in comparison to each other.
|
DETAILS |
SECURED LOAN |
UNSECURED LOAN |
|
Loan Amount |
High |
Low |
|
Collateral |
Required |
Not required |
|
Tenure |
15 – 30 years |
up to 5 years |
|
Interest Rates |
Low |
High |
|
Documentation |
More documents required |
Fewer documents required |
|
Speed of Disbursement |
Slower |
Very fast |
|
Examples |
Loan against property, Home Loan, Car loan, etc. |
Personal Loan, unsecured business loans, credit card purchases, etc. |
Thus, both secured and unsecured loans have their merits and demerits, and depending on your individual situation and requirement, you can make your choice. For instance, if you need a large loan amount and would like a longer tenure so as to be able to manage EMI payments without facing any financial stress, a secured loan would be a good option. On the other hand, if you are in urgent need of finances (less than a week) and would like to speed up the process, an unsecured loan would be the better choice.
Important Note: This article is for general informational purposes only and may be subject to change from time to time. As product features, eligibility criteria, interest rates, charges, fees, tenures and other terms may be revised as per SMFG India Credit's policies, readers are advised to refer to the latest details from the respective product pages (please select from the top menu). For the latest loan charges, please visit Charges & Fees Link and for the latest Interest rates, please visit Interest Rate Rationale. Please note that final loan terms, disbursement process and eligibility criteria will depend on SMFG India Credit's policies at the time of loan application.
The content of this article is for information purposes only and does not constitute as, an offer or advise to avail any products or services from, or, a commitment to grant any loan by the company. It is not intended to create any rights or obligations against us. All content is provided "as is" without any warranty of any kind, either express or implied & we disclaim any warranty or representation, whatsoever, in regards to the content. Please refer to the Privacy Policy of the company to understand the use, processing and storage of your personal data.
Was this helpful?
Insurance disclaimer SMICC is registered with the Insurance Regulatory and Development Authority of India (IRDAI) as a Corporate Agent. IRDAI Registration No.: [CA0098] CIN No. U65191TN1994PLC079235. The insurance policy is a contract between the customer and the insurance company, and policy is underwritten by insurance companies. SMICC acts only as the distributor and is not responsible for any risk, policy issuance, claim settlement/repudiation etc. Insurance is the subject matter of solicitation. Purchase of insurance is voluntary and subject to insurer underwriting and policy terms and conditions. Customers are advised to read the policy terms and conditions, benefits, exclusions, claim settlement carefully before purchase. Kindly note that “Insurance Products” are not mandatory for the purpose of the application and disbursement of loan. It shall be the sole discretion of the customer, by providing explicit consent, to avail such insurance along with the Loan.
Beware of Spurious calls/ Fraud phone calls IRDAI is not involved in activities like selling Insurance policies, announcing bonus or investment of premium. Public receiving such phone calls are requested to lodge a police complaint.
