If you are planning to get a loan to get your business started or grow an already running venture or if you are just in need of some financial aid, then it highly recommended that you do a good research about that kinds of loans available to you.
Many varieties of loans are on offer but broadly loans are of two types: secured and unsecured.
When the borrower pledges some of his assets in favour of the lender as collateral against the amount borrowed, the loan is a secured one. The assets are in the lender’s possession and can be sold off by the lender if the loan is not repaid. Secured loans have minimal risk for the lenders and hence are more easily available. If a loan is taken up by a borrower without offering any collateral to the lender then it is said to be an unsecured loan.
Secured loans are comparatively easy to avail and many financial institutions offer secured loans such as house loans, car loans, auto loan and more.
Unsecured loans come with a higher interest rate and are offered for lower values mostly, as the risk to the lender is greater. Education and personal loans are examples of unsecured loans generally available. Before you decide which loan to take, make a list of assets you can offer as collateral, the interest rates being asked on the loans and the amount you wish to borrow and then choose between a secured and an unsecured loan that best suits your requirements.
Given a requirement where either of the loan may be availed, which one should choose???
Well, it depends on individual situation. The lenders give unsecured loan only when they are sure of getting the same back. This is ascertained by the financial standing or annual earning of the borrower. No one would like to compromise on his or her CIBIL score for the delayed or non repayment of the small amount. Now this “Small amount” is a relative term and depends upon individual networth.
For unsecured loans, few lenders also insist upon PDCs or even personal guarantee of unrelated person. So as in case of default, the onus may also be put upon another wealthy person who in turn will ensure repayment for his comfort. With such securities, it becomes reasonably safe asset in bank books and that too bearing higher interest rate. In contrast, secured loan offers a specific asset only as collateral against the loan amount taken.
While unsecured loans are best way for the people with sound earning or networth but some issue on collaterals like already pledged, under charge of other bank, title not clear especially in case of properties etc. Another reason could be to keep provisioning for higher value loan in future. While few people may have other reasons also, but if you donot have any such reason, then it is better to go for secured loan and save on interest costs.