There are different types of loans offered in India by banks and NBFCs. But you can classify all them loans under two categories, secured loans and unsecured loans.
The Unsecured Loan
When you get a loan without providing collateral, it’s an unsecured loan. Generally, these loans are easier to get if you’ve a good credit rating. But they’re also more expensive when it comes to interest rates. Unsecured loan examples include Credit Card Loans and Personal Loans.
When you apply for a Personal Loan or other unsecured loans, the lender pulls out your credit report and credit score from credit rating agencies like CIBIL. This helps assess your past record in debt repayment. If you’ve kept up with Loan EMI and credit card dues and cleared your previous loans on time, you’ll be considered a good candidate for a loan.
If you have a good credit score, the loan approval process will be fast and the amount will be credited to your savings account within a few days.
Types of Unsecured Loans
Different types of unsecured loans are available. They include Personal Loan, unsecured business loan, Credit Card Loan, and Unsecured Car Loans. You can get different kinds of Personal Loans depending on the purpose, like Consumer Durables Loan, Travel Loan, and Marriage Loan.
If you pledge a possession that has a large value and get a loan against this, that’s a secured loan. Home Loans and Gold Loans are good examples of this. These loans come at a lower rate of interest when compared to unsecured loans. The lender has an asset they can use to redeem the amount lent if the borrower defaults on the loan.
The processing time for this type of loan is longer since the lender has to verify the authenticity and ownership of the pledged asset. The collateral is at risk if you fail to keep up with payments.
Still, interest rates are much lower when compared to unsecured loans. If you’re confident of being able to pay off the amount on time, a secured loan is a good option.
Types of Secured Loans
Loans against Securities, Loan against Property, Gold Loans, Loan against Fixed Deposits are some of the different types of secured loans available in India.
Secured vs Unsecured Loans
Secured loans are less expensive since the interest rates are lower. They help you make good use of an idle asset and get funds. If you keep up with EMIs, you can pay off a secured loan when compared to an unsecured loan for the same amount.
Unsecured Loan rates are higher, but they’re much easier to get than secured loans. If your credit rating is good, you can get a Personal Loan at a lower rate of interest. You also avoid putting an asset at risk. You can easily apply for unsecured loans online and get approved quickly. The money will be made available to you within a few working days. This is ideal if there’s an emergency.