When in need of money, opting for a loan is what we all think of. Banks and online money lenders offer loans to individuals depending on certain eligibility criteria including credit score, income, employment type, collateral and others. When looking for a loan, one can either opt for an unsecured loan or a secured loan depending on the requirement and eligibility criteria. Read on to know the different between secured and unsecured loan that will help you get the money at best interest rate.
Things to know about secured vs unsecured loansSnneha Lukka september 4, 2019
What is secured loan?
A secured loan is a type of loan given out by a lender by keeping an asset as collateral or security for repayment of the loan. For instance, if you have opted for a car loan, then the bank will hold on to the ownership of the car until the loan is fully paid. Loan against property, home loan, car loan, gold loan are different types of secured loans that you can avail. Interest rate and processing fee for this type of loan is generally higher than unsecured loans.
What is an unsecured loan?
As the name suggests, unsecured loan is a type of loan that does not require you to pledge any of your assets to get the money. The interest rate on this type of loan is comparatively higher than secured loans and the eligibility amount for this type of loan is decided on the basis of your income, credit score, employment type and others. Credit cards, personal loan, student loan are different types of unsecured loans.
Difference between secured and unsecured loan
Collateral: One of the primary differences between a secured and an unsecured loan is that a secured loan makes it mandatory for you to keep a collateral, whereas an unsecured loan does require you to keep the same to avail the money. Rate of interest: Compared to a secured loan, an unsecured loan usually has a low interest rate. This is primarily because unsecured loans are considered to be a risky affair as there are no assets pledged towards loan repayment. Repayment tenure: Secured loan usually have a lower repayment term in comparison to unsecured ones. Availability: Secured loans are easier to obtain than unsecured ones as lenders are usually at low risk in a secured loan contact.
Choosing between secured and unsecured loans
Here is how you can decide between secured and unsecured loans: Requirement of the funds: Secured loan such as home loan is offered for term of 30 years, whereas, a car loan is offered for tenure of up to 7 years. On the other hand, an unsecured loan is offered for tenure of up to 5 years depending on your eligibility criteria. This means that tenure and loan amount of an unsecured loan is shorter in comparison to secured loan. Therefore, when applying for a loan keep in mind your requirement and then choose the type of the loan you want to avail. Credit score: When opting for an unsecured loan, your credit score is important as it determines your credit worthiness. Usually, for this type of loan, the lender requires you to have minimum credit score of 750. Your credit score also plays an important role in determining the interest you would have to pay. However, with a secured loan, your asset is the key to getting your loan amount sanctioned as this type of loan is less risky in comparison to unsecured loan. Hence, if your credit score is at par, then opting for a secured loan would be a wise thing to do. Tenure for which you need the loan: Secured loans are more suitable for meeting financial requirements such as wedding in the family, hospitalization costs, house repairs and others. However, if investing in business operation or buying a property for the same, availing an unsecured loan would be the best thing to do as this loan is offered for tenure of up to 25 years.
Another way that one can find it easy to avail loan for housewife is to add a co-applicant with a steady income to their application form. This can be made possible for the housewife to add her working husband or their father, if he is an earning member. A co-applicant enables one to get a joint personal loan. The loan amount provided will primarily depend on the co-applicant’s income. The maximum loan amount sanctioned can be a multiple of the co-applicant’s take-home income. In this agreement, the co-applicant will be held equally responsible for paying the monthly EMIs.
4. Loan Guarantor:
Individuals who are seeking loan for housewife can also add a guarantor to their application. If you do have a stable income or can pay off the loan without any financial assistance, you can also consider adding a loan guarantor to your application. A loan guarantor is an individual who agrees to take on the responsibility of repaying the loan in case the primary applicant defaults on the same. By adding a loan guarantor with a high credit score and outstanding credit history, you stand a greater chance in getting your loan without much hassle.