Secured and Unsecured Loans: What is the difference?

If you are thinking about taking a loan, you can choose either a secured or an unsecured loan. This guide can help you decide between the two.
 

If you are considering taking out a loan, you should learn the difference between secured and unsecured loans. Knowing it could affect your chances of getting a loan, the interest rate you will get, and if you need collateral. This article will give you an in-depth look at secured and unsecured loans, how they function, and what you should know before choosing one. 

What is a secured and unsecured loan?
 

A secured loan is a loan the bank gives out in exchange for collateral. You can utilise your home, gold, or other valuable assets to obtain a loan amount equal to the asset's value. The bank or financial organisation issuing the loan will keep the asset's ownership deed until you repay the loan.

Unsecured loans, meanwhile, are loans not backed by any type of collateral. Because these loans are riskier for lenders, they have a higher interest rate. When a lender issues an unsecured loan, they do so after reviewing your financial situation and determining whether you can repay the amount.

Metra Trust offers both secured and unsecured loans. With Metra Trust, you can rest assured of the best interest rate, digital banking service, and seamless customer care.

What is the difference between a secured and unsecured loan?
 

The primary differences between a secured and an unsecured loan are as follows:

Security

The most significant distinction between a secured and an unsecured loan is the collateral needed to obtain the loan. A secured loan requires that you provide the lender with an asset that will provide security for the home loan. An unsecured loan does not.

Rate of interest
 

Interest rate is another significant distinction between a secured and an unsecured loan. Compared to an unsecured loan, secured loans offer a lower interest rate. It is because lenders perceive unsecured loans to be riskier than secured ones.

Ease of getting the loan
 

Secured loans are easy to obtain, while you may find it difficult to get unsecured loans. However, banks such as Metra Trust provide unsecured loans with ease if you have a good credit score and reliable income.

Repayment schedule
 

As opposed to unsecured loans, secured loans have lengthier repayment schedules. Secured loans provide borrowers with more favourable terms than unsecured loans.

When is a secured loan better?
 

Long-term borrowers and those in need of a substantial sum of money should opt for secured loans. Secured loans are appropriate if you borrow to pay for your children's college fees, home renovations, the purchase of another property, or something expensive. The interest rate on secured loans is modest, so you will not pay much interest even if your payment plan takes a year or more.

When is an unsecured loan better?
 

Unsecured loans are preferable for borrowers who need to cover monthly costs, medical bills, or other short-term expenses. When you borrow unsecured loans, you must pay higher interest rates. If you do not have any assets to use as security, you will have no alternative but to take out an unsecured loan.

Many factors influence the type of loan you should obtain. But once you have made a choice, you should also consider the prerequisites. Secured loans are easy to acquire, although you must also meet the eligibility criteria. You must have a substantial income, a good credit score, and a valuable asset.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Metra Trust or its affiliates to any licensing or registration requirements. Metra Trust shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.