At some stage of your life, you are most likely to require a personal loan to cater to your immediate financial emergencies and even apply for one. While personal loans are deemed as an easy source of money for your needs, you would be entitled to avail of either type of personal loan – secured or unsecured. Each of these loan options has its own set of features and benefits, making them suitable for specific purposes.
Secured Personal Loans
Secured personal loans are loans provided to the borrower upon furnishing an asset as collateral. Some common examples of assets as collateral are houses, jewelry, savings, properties, and vehicles, etc.
Upon furnishing collateral, the borrower is giving the lender the right to possess the collateral if he/she is unable to repay the loan as per the loan’s terms and conditions. The lender can then liquidate the furnished asset and recover the loan amount in parts or full. If the liquidated asset cannot cover the loan amount fully, the borrower is liable to pay the remaining difference.
Thus, a secured personal loan application process always involves submitting the title deeds or essential documents that indicate the asset’s ownership. Secured personal loans may take a longer time to process but offer lower interest rates and come with high chances of approval despite the borrower’s poor credit history. The loan amount is directly proportional to the value of the collateral.
Unsecured Personal Loans
These are the most common type of personal loans offered by lenders. Unlike secured personal loans, unsecured personal loans do not require any collateral to be furnished by the borrower. Some of the common examples of unsecured loans include student loans, wedding loans, and home renovation loans. As there is no collateral required for unsecured loans, the lender is at constant risk of recovering the loan, and thus, unsecured loans attract a higher rate of interest to compensate for the loss or risk.
Unsecured personal loans are sanctioned depending on the borrower’s income, credit history, and credit score. With a good credit score above 750, any lender shall be inclined to offer an unsecured loan to the borrower, and contrarily, a poor credit score can lead to a rejection of the personal loan application.
The easiest part about unsecured loans is their seamless application process that involves minimal documentation. No additional documents to prove any sort of asset ownership is needed like in the case of a secured personal loan application.
A Final Thought
Regardless of the personal loan option, you wish to proceed with, it is advisable to do detailed research on the interest rates. Besides discovering the variation in interest rates, also look out for any additional processing fee, repayment, and foreclosure charges, associated with the personal loan.
An even better way would be the use of an exclusive EMI calculator to calculate the personal loan EMI for the interest rate offered by a credible lender and see if it fits your pocket. With reliable online financial platforms such as Finserv MARKETS, you can now not only calculate the personal loan EMI beforehand but also apply for a personal loan just with a few clicks and minimal documentation.