What is the difference between secured vs unsecured loan?

When it comes to borrowing funds, not all loans are offered on the same terms. Some require security—home, shop, or property, while others can be availed solely on the strength of your financial profile and credibility.

Being aware about the difference between secured and unsecured loans is key to making the correct borrowing decision—whether you are expanding your business, managing expenses, or purchasing property.

Read on to understand the concept of secured and unsecured loans.

What is a secured loan?
 

A secured loan is a credit option, which is backed by collateral or security—an asset you own—your house, any land, or commercial space. This asset serves as a guarantee for the lender. In the scenario of a loan default, the lender holds the rights to recover its dues by selling the assets pledged as security.

Secured loans are:

•  Loan against property (LAP)
• Home loan
• Car loan
• Loan against gold or fixed deposit (FD)

Such credit options have lower interest rates and longer repayment tenures due to lower risk faced by lenders.

What is an unsecured loan?
 

An unsecured loan, in contrast, does not need any kind of collateral. These loans are approved depending on your income, credit score, bank statements, and repayment track record. Since there are no assets required with this credit option, the interest rate might slightly be higher than secured loans.

Unsecured loans are:
 

• Personal loan
• Business loan
• Consumer durable loan
• Credit card loans

Unsecured loans are prudent for urgent requirements—medical expenses, travel, working capital, or business expansion—with zero need for risking any of your assets.

Secured vs. unsecured loan: Which option you must opt for
 

It all depends on your need, urgency, and whether you are comfortable pledging collateral. If you own a property and are looking for long-term funding at enticing rates, a loan against property might be a suitable choice.

If you need a fast and flexible credit facility with zero need for putting any asset at risk, an unsecured business loan or personal loan might be the better option.

A business loan may be opted for if you need funds for inventory, expansion, vendor payments, or managing seasonal demand. However, a personal loan can cover up medical emergencies, travel, or home renovation—with zero need for any collateral.

Why consider getting a high-value loan from IDFC FIRST Bank using your property?
 

Looking for higher loan amounts with extended repayment flexibility? An LAP from IDFC FIRST Bank may be just what you need:

• Avail loans up to ₹15 crores with flexible tenures up to 25 years
• Get funding up to 80% of your property value
• Option to transfer your existing LAP, and even top-up at attractive interest rates
• Avail Loan against Rental Income (LRD) or for Commercial Property/Plot Purchase (LCP)

This is ideal for established business owners, professionals, and anyone looking to unlock the true potential of their property.

Need an unsecured loan for business? Choose a business loan from IDFC FIRST Bank
 

IDFC FIRST Bank’s unsecured business loans simplify and accelerate financing your business idea. Here's why it's the smart thing to do:

• Receive collateral-free loans up to ₹1 crore, so you can stay focused on business growth—not paperwork.
• Enjoy a quick, digital, and hassle-free process with fast disbursal.
• Get fast-track loan approvals for amounts up to ₹50 lakhs based on the business’s bank statements or GST returns, even if your business is relatively new.
• Choose between a term loan or dropline overdraft, depending on your repayment style.
• Make smarter decisions using IDFC FIRST Bank’s business loan EMI calculator to plan your finances better.

Whether you are a trader, manufacturer, or professional service provider, IDFC FIRST Bank helps you access timely credit through business loans, without needing to mortgage your assets.

Ending note
 

Choosing between a secured or unsecured loan depends on what you need, how quickly you need it, and whether you want to offer any asset as collateral. Both types of loans serve important purposes—while secured loans give access to higher amounts at lower rates, unsecured loans offer speed, flexibility, and freedom from asset-based risks.

Whether you're going for a business loan, a loan against property, or a personal loan, IDFC FIRST Bank offers a well-balanced range of solutions to meet your financial goals.