Borrowing funds via a loan such as an unsecured personal loan or a secured loan is an efficient way to meet your needs for finances. You may do so to take care of urgent expenses or fulfill goals without drawing from your savings. However, today, you have a plethora of options to choose from and it is in your best interest to pick one that is tailored to your needs.
To make the best borrowing decision, ensure that you learn all you can about the different types of loans. To help you get started, here is a detailed explanation of the differences between a secured and unsecured loan in India.
What is a Secured Loan?
A secured loan is one in which the lender requires you to pledge collateral or security to sanction the funding. Collateral may include any personal asset with a value higher than the amount you wish to borrow. This is done so that the lender is assured of returns in case of a default. A few well-known examples of a secured loan are a home loan, auto loan, loan against property, and secured personal loans in India. In case of a home and auto loan, the property or car you wish to purchase serves as collateral.
What Are The Benefits of Opting For a Secured Loan?
Since you pledge security when opting for a secured loan, you enjoy a range of additional benefits on your sanction. These may include the ability to qualify for a larger sanction or get the loan at better terms. Additionally, high-value collateral also qualifies you for a loan that you wouldn’t otherwise have access to because of a low credit score. However, your sanction is entirely dependent on the lender and the protocols that it observes to offer a sanction.
What Are The Consequences of Defaulting?
Defaulting on a secured loan has two major outcomes. First, the lender has the legal right to claim the collateral you pledge. This includes repossessing the car pledged for the auto loan, foreclosing the house pledged for the home loan or claiming any personal asset pledged.
Secondly, it negatively affects your credit score and remains on your credit history for up to 7 years. This makes it difficult for you to apply for loans or credit in the future as lenders will investigate your credit history and will be reluctant in issuing new loans to you as you have a history of default.
Now that you have insights into a secured loan, here’s all you need to know about borrowing an unsecured loan.
What is an Unsecured Loan?
An unsecured loan is one in which you are not required to pledge any collateral to qualify for the loan. However, lenders scrutinize your credit score and your financial standing closely. So, to avail of this loan variant like an unsecured personal loan you should have a credit score of at least 750. Your credit score indicates your creditworthiness and the lender uses this to gauge your repayment history and credit behavior. Therefore, the higher the score, the easier it will be for you to get access to an affordable sanction.
What Are The Benefits of Opting For One?
Since an unsecured loan does not require any collateral, you bypass verification and evaluation protocols and speed up the loan acquisition process. As a result, some top-tier lenders may even offer instant approval on an unsecured personal loan.
What are the Consequences of Defaulting?
Defaulting on payments towards unsecured loans has a detrimental effect on your credit score. With every missed payment, your score decreases by a few points and this is reflected in your credit history. Furthermore, having a history of missed payment is a red flag for the lender and they will refrain from extending credit to you as you carry a high risk.
An unsecured personal loan is among the easiest to obtain, especially from top-tier lenders, as they offer instant approvals. This feature, coupled with speedy disbursals, comes in handy when you’re looking for funding in the time of emergency Further, when borrowing a personal loan in India, by using the EMI calculator offered by the lender, you can know exactly how much you’re obligated to pay as monthly installments before you apply. It helps you not only plan your repayment, but also compare lenders so that you can pick a suitable loan that gives you access to a nominal interest rate and other lucrative features.
The Bajaj Finserv Personal Loan is one such option as it offers a large sanction at a competitive interest rate. You can get up to Rs.25 lakh for a flexible tenor ranging between 12 and 60 months and enjoy complete transparency. Furthermore, this loan has relaxed eligibility criteria and so you can qualify easily. Upon approval, you can get the loan amount disbursed to your bank account in under a day. To expedite the application process, check your pre-approved offer to get access to a tailored loan offering and enjoy instant approval.