Secured vs unsecured loan: Everyone needs to take a loan at some time. Someone home, then someone to buy a car. Many people also take loans for marriage or medical emergency. But, have you ever wondered why there are different loans for every work. Such as home loan to buy a house, vehicle loan to buy a car and personal loan for private expenses?
There are many types of loans, but they are usually divided into two categories. The first is SECURED LOAN and the second unsecured loan. Let us know in detail about both these categories and the loan received under them.
Unsecured loan
You do not need to pledge anything for an unsecured loan. Banks approve the loan by estimating your income, credit score and repayment capacity.
However, the interest rates on these are high and the loan amount can also be quite limited. Let’s know about the major loans found under the unsecured category:
- Personal loan
This loan can be taken for any personal needs- such as marriage, travel, medical emergency or home repair. Its interest rate is usually between 8% to 15%. Loan duration, amount and interest rate depends on your credit score and monthly income.
2. Education Loan
Education loan is taken for high -range expenses. Such as tuition fees, living expenses etc. It has facilities like Moretorium period, in which the installment is not to be paid until the studies are completed. The interest rate on this is usually from 8% to 16%.
3. Credit Card Loan
If you have a credit card, banks can offer you a loan based on the credit limit already fixed. Its interest rate may exceed a personal loan and it reaches 53% annually on some cards.
4. Short Term Business Loan
This loan is given for everyday needs of small businesses, such as working capital, expansion or equipment. It gets without any guarantee, and there is also a facility to repay early.
5. Flexi Loan
Banks offer overdraft facilities up to a certain limit in Flexi Loan. However, interest is only on the amount that is actually used, not on the entire sanctioned amount. For example, if there is an overdraft of 50 thousand rupees and you use only 10 thousand, then you will also have to pay interest at 10 thousand rupees.
Secured loan
As the name is evident from the name, secured loan means safe debt. In this, in lieu of loan, you have to mortgage a valuable goods to the bank. If a person fails to repay the loan, the bank can make his recovery by selling his goods.
The bank offers more loan amount in secured loans, too for long periods and at relatively low interest rate. Let us know about the major loans found under it:
Through a home loan, you can buy property like home or plot, which is a guarantee of loan itself. Its duration is usually between 15 and 30 years. Interest rates can go from 8% to 15%. It also provides the facility of floating rate. This means that if the RBI repo rate is reduced or high, then your interest rate will also decrease or increase accordingly.
2. Vehicle Loan
This loan is available to buy a car. With this you can take to buy cars, bikes or commercial vehicles. Banks give loans up to 85% of the ex-showroom price of the vehicle. The interest rate and duration depends on your credit score. In this too, the vehicle is guaranteed to loan.
3. Gold Loan
In this, you can take a loan by pledging your gold ornaments. These are usually for short work and are given for a short period. Its interest rate can range from 8% to 18% annually. It is considered to be the most secured loan, as the bank can easily recover its debt by selling gold in the position of default.
4. Loan Against Security
You can also take a loan by pledging financial investment like your mutual funds, shares, insurance policy. Banks offer loans up to 85% of net asset value (NAV) of date funds and up to 65% of equity shares.
5. Loan Against Property (LAP)
If you have any property, you can take Lap in lieu of it. This loan can be used for any personal or business need. Interest rates usually range from 8.40% to 12.50%.
Also read: Explainer: What is now a ‘smart’ opportunity to buy a house? How long will you get cheap home loan
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