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Personal Loan

Secured and unsecured loans: Which should you choose?

Key Takeaways

  • Secured personal loans require collateral, such as gold or property, and offer lower interest rates and higher loan amounts based on asset value.
  • Unsecured loans don't require collateral, offering instant funds, but come with higher interest rates and stricter eligibility requirements.
  • FIRSTmoney stands out as an attractive unsecured personal loan with benefits like low processing fees, no foreclosure charges, and a seamless application process.
  • When choosing between secured and unsecured loans, consider your asset availability, credit score, and the urgency of your financial needs to make an informed decision.
16 Dec 2024 by IDFC FIRST Bank
Secured and unsecured loans
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Personal loans can be a multipurpose solution for your varied financial needs. Whether you need money for meeting an emergency, planning a trip, home renovation, or a business venture, personal loans can help. Moreover, with the different types of loans available, you can find the right solution for your financial needs.

Personal loans can be categorised under two main heads - secured and unsecured loans. Both types of loans offer quick and easy funds, but they differ in features. Each of them also has their respective pros and cons. Let’s understand the differences and comparative advantages of each.

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What are secured and unsecured loans?
 

Secured personal loans are those which require collateral security. The loan amount depends on the value of the pledged security. A common example is a gold loan, offered against gold jewellery and ornaments. You pledge your gold assets and get a loan based on their value.

Unsecured personal loans do not require collateral security. They are sanctioned based on your income and other eligibility parameters. Regular personal loans, including FIRSTmoney, are unsecured loans issued without security.

Pros and cons of secured and unsecured loans
 

Now that you know the meaning of these loans, let’s understand their respective benefits and drawbacks.

Secured loans 
 

Pros 

Cons 
  1. If the value of the collateral is high, you can get a high loan amount
  2. The interest rates are lower since the default risk is low. If you default on the loan, the lender can sell off the asset to realise the outstanding dues
  3. The eligibility parameters are more relaxed since the loan is backed by a collateral security
  4. You can get a higher repayment tenure
  1. A collateral security is a must. If you don’t have any assets to pledge, you will not be able to get the loan
  2. If the value of the asset is low, your loan amount will be restricted
  3. The loan sanction takes little time

 

Unsecured loans

 

Pros 

Cons 
  1. You can get instant funds for your financial needs
  2. No collateral security is required. This makes the loan suitable for individuals who do not have suitable assets to pledge
  3. You can get an optimal loan amount if your eligibility is good
  1. A high credit score is required since the loan has a higher risk of default
  2. The interest rates are on the higher side since the lender faces a high default risk on the loan
  3. If your eligibility is low, the loan amount will be restricted


Difference between secured and unsecured loans
 

Here’s a look at the differences between secured and unsecured loans –

Point of difference

Secured loan

Unsecured loan

Collateral security

A collateral security is required.

Common examples include gold, property, investments, etc.

No collateral security is needed for the loan

Interest rate

Interest rates are lower

Interest rates are higher

Loan amount

The loan amount depends on the asset pledged

The loan amount depends on your income and other eligibility qualifications

Eligibility criteria

You can get the loan with lower eligibility qualifications since it is backed by the collateral

You have to meet the eligibility parameters and have a good credit score to get the loan

Asset repossession

If you default on the loan, the lender can sell off your asset and use the funds for clearing the debt

No risk of repossession since no asset is pledged

 

FIRSTmoney – An unsecured financial solution 
 

While you understand the difference between secured loans and unsecured loans, there’s another option to consider – FIRSTmoney. It is a smart personal loan that offers instant access to funds of up to ₹10 lakhs.

With FIRSTmoney, you don’t have to pledge any asset as collateral, and you can enjoy –

  1. Low processing fee
  2. Zero foreclosure charges
  3. Interest only on the borrowed amount
  4. Seamless digital application process with zero paperwork

The eligibility criteria for FIRSTmoney are –

  1. You must be a salaried or self-employed individual between the ages of 21 to 60 years
  2. You must have a CIBIL score of 730 or above

To apply for a FIRSTmoney personal loan, follow these simple steps -

  1. Start by scanning the QR code or clicking loan from your smartphone
  2. Register using your mobile number and confirm basic/personal details to check your eligibility
  3. Select the loan amount of your choice and choose from flexible repayment terms
  4. Link your bank account where you wish the funds to be disbursed
  5. Complete the Video KYC verification process with your physical PAN card

Start making smart choices today
 

Both secured and unsecured personal loans have their pros and cons, and the ideal fit for you depends on your unique needs. However, if you don’t have adequate assets or if you need instant funds, choose FIRSTmoney and fulfil your financial needs without hassles. To get started, apply for FIRSTmoney by IDFC FIRST Bank today!

 

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.

The features, benefits and offers mentioned in the article are applicable as on the day of publication of this blog and is subject to change without notice. The contents herein are also subject to other product specific terms and conditions and any third party terms and conditions, as applicable. Please refer our website www.idfcfirstbank.com for latest updates.

The features, benefits and offers mentioned in the article are applicable as on the day of publication of this blog and is subject to change without notice. The contents herein are also subject to other product specific terms and conditions and any third party terms and conditions, as applicable. Please refer our website www.idfcfirstbank.com for latest updates.

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