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Personal Loan

What is a collateral?

Key Takeaways

  • Borrowers generally use real estate, fixed deposits, gold, vehicles, and insurance policies as collateral.
  • Unsecured loans like FIRSTmoney personal loans demand no collateral.
  • FIRSTmoney provides quick, collateral-free personal loans with flexible repayment schedules and a completely digital application process.
21 May 2025 by Team FinFIRST
What is Collateral in Loan
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When applying for a loan, you may come across the term "collateral". Collateral serves as security for the lender and can affect loan eligibility, amounts, interest rates, and approval chances. Hence, understanding collateral clearly can empower borrowers to make informed financial decisions and improve their chances of obtaining favourable loan terms. In this article, know all about collateral, its types, and more.

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What is a collateral?
 

Collateral is something valuable like a house, gold, or vehicle offered to a bank or lender as security for a loan. It gives the lender assurance that, if you fail to repay the borrowed money, they can take and sell the collateral to recover their money. This reduces the risk for lenders, making them more willing to lend to borrowers.

Types of collaterals in loans
 

Collateral varies with the nature of the loan and lenders’ policies. The most common ones are:

· Real estate:
 

Residential houses, plots, or commercial properties are widely accepted as security assets for home loans and business loans.

· Fixed deposits and investments:
 

FDs, bonds, or equity can be pledged to get loans.

· Gold and jewellery:
 

Some lenders provide loans against gold jewellery or bullion.

· Vehicles:
 

Borrowers can pledge cars, two-wheelers, and commercial vehicles too to get vehicle/auto loans.

· Insurance policies:
 

Life insurance policies with cash surrender value are acceptable as collaterals.

Secured vs unsecured loans: Which is the best choice for you?
 

Feature

Secured loans (with collateral)

Unsecured loans (without collateral)

Interest rates

Lower, as collateral reduces risk

Higher due to increased risk

Loan amount

Higher, based on asset value

Usually lower than secured loans

Approval process

Requires asset verification

Faster, as no asset evaluation is needed

Risk to borrower

Asset may be seized if not repaid

No asset seizure possible, but legal action can be taken



If you possess valuable assets and require a higher loan value at a lower interest rate, a secured loan should be your choice. But if you require funds quickly without mortgaging any asset, an unsecured personal loan is a better alternative.

Collateral can be used to borrow against a loan, but true financial freedom is in making the correct borrowing decision that best suit your needs.

Why FIRSTmoney should be your preferred choice for a personal loan
 

For borrowers who don’t prefer taking the risk of losing their assets while taking a loan, FIRSTmoney’s loan without collateral provides the perfect solution. Instead of pledging assets, salaried individuals can quickly access funds with minimal documentation.


With loan amounts ranging from ₹ 50,000 to ₹ 10 lakhs, FIRSTmoney offers financial flexibility for borrowers’ various needs like medical emergencies, home renovations, or educational purposes. Since it is 100% online, disbursal of the loan can be immediately done after quick approvals, making it convenient for both the parties. With competitive personal loan interest rates of 10.99% p.a., repayment schedule ranging from 9 to 60 months, and no foreclosure fee, borrowers have complete control over repayments.


Conclusion

Collateral influences everything from eligibility and loan amounts to interest rates and repayment terms.  FIRSTmoney provides an easy and convenient method of securing a collateral-free personal loan with instant approvals and competitive rates if you need a loan without collateral. Therefore, choose a financial solution that fits your needs without taking unnecessary risks.

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.

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