Secured vs Unsecured Loan: Which should you opt for?

financialexpress.com:

Borrowing money is a common financial practice for meeting personal expenses, starting a business, or buying a home. Often people have multiple options for borrowing, but they are unable to choose the best deal as they don’t understand the impact of borrowing on their financial health.

For example, secured loans typically allow for larger loan amounts, making them suitable for significant expenses like buying a home or financing a business. On the other hand, unsecured loans do not require collateral. Instead, the lender evaluates the borrower’s creditworthiness, income, and financial history. Understanding the difference between secured and unsecured loans is paramount. It’s essential to grasp the nuances of each before borrowing.

Secured loans, as the name suggests, are backed by collateral. Collateral refers to an asset (such as real estate, a vehicle, or even fixed deposits) that the borrower offers as security to the lender. In the event of default, the lender has the right to seize and sell the collateral to recover their money. Secured loans are typically preferred by lenders due to the reduced risk they carry, resulting in several advantages for borrowers:

Lower Interest Rates: Secured loans often come with lower interest rates compared to unsecured loans. This is because the presence of collateral reduces the lender’s risk, making them more inclined to offer favourable terms.

Higher Loan Amounts: With collateral in place, lenders are more willing to extend larger loan amounts, making secured loans an excellent choice for substantial financial needs such as buying a house or funding a business venture.

Also Read: What happens when you stop using your credit cards?

Longer Repayment Periods: Borrowers can usually