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Secured Loans vs Unsecured Loans

July 04, 2021 | posted in News | posted by : Manappuram Finance
No one ever knows when an urgent requirement of money can arise. Banks and NBFCs are the support system to fall back upon when one is in dire need of funds. Such finance firms offer two types of loans for the borrowers, viz. secured loan and unsecured loan. We would be looking at what is a secured loan and what is an unsecured one. To state in simple terms, a gold loan is a secured loan. You might have got an idea of what a secured loan means. We would be discussing in detail what is a secured loan and what is an unsecured loan, with examples, in this article.

What is a Secured Loan?
 
A secured loan is the type of loan that requires the borrower to mortgage an asset against the loan. The collateral would be considered as the guarantee for the money lent. Since the banks and NBFCs receive the property, the procedure for this type of loan would be simpler than an unsecured loan.
 
As we have seen gold loan is a secured loan, which could be obtained without any daunting process. The financers would not be examining the credit score or credit history for a secured loan. Additionally, this doesn’t necessitate a guarantor. The money is also disbursed within a short time itself.
 
Types of Secured Loans
 
Different types of secured loans are available. One can seek the loan depending on the availability of collateral or for specific purposes.
 
1.     Gold Loan
 
A gold loan is the easiest loan to get. It doesn’t require the borrower to prove his or her income details, credit score, credit history or the purpose for the loan. A guarantor is also not required in this case. Individuals can pledge their gold ornament, coin, or bar at the banks or NBFCs and receive money depending on the value of the gold asset. It will be approved within a couple of hours. We also facilitate online gold loan applications and 13 gold loan schemes for clients to choose from. The easy and convenient repayment option is another factor that amplified the acceptability of gold loans. A gold loan is a secured loan that has registered a quantum leap in the previous couple of years.
 
2.    Vehicle Loans
 
Vehicle loans are taken for the purchase of two-wheelers and four-wheelers. The vehicle would be the collateral in this case. The financer can sell the vehicle if the borrower defaults the repayment even after repeated reminders. The RC book would be marked “Hypothecated to…”. The hypothecation can be removed after complete repayment, on obtaining a NOC from the lender.
 
3.    Home Loans
 
Home loans are meant for the purchase or construction of the house. The financer/ bank would approve a maximum of 75 to 80% of the cost. The house documents, including the title deed, would remain mortgaged at the bank until all the EMIs are paid. A home loan is specifically for the purchase or construction of the house and it cannot be used for any other purpose. 
 
4.    Loan Against Property
 
A person can mortgage his or her residential or commercial property and obtain funds. The documents would remain with the lender until the time the loan is repaid completely.
 
5.     Secured Business Loan
 
Businesspersons usually opt for secured business loans. The asset including machinery and industrial equipment would be mortgaged for a secured business loan. This way they would be finding funds for urgent requirements.

What is Unsecured Loan?
 
An unsecured loan doesn’t require the borrower to pledge any property, movable or immovable asset. This is the basic difference between secured and unsecured loans. The unsecured loan would be approved solely depending on the borrower’s capability to repay the loan.
 
Financers would examine the credit history, credit score, and income status and ascertain whether she or he would be able to meet the repayment criteria. A low or poor credit score/ CIBIL score can lead to the rejection of an unsecured loan application.
 
Unsecured loan, being a loan without any collateral, has a high-interest rate normally. This is another major difference between a secured and unsecured loan. Non-repayment or repeated defaults can affect the credit score.
 
Types of Unsecured Loans
 
Individuals can opt for different types of unsecured loans depending on their varying needs. The different types of unsecured loans are elaborated in the succeeding paragraphs.
 
1.         Credit Card Loans
 
Credit cards are normally used for the purchase of items at shopping centers and online. The debt thus created has to be repaid in the stipulated time after the generation of the bill. Credit cards can also be used for obtaining money on loans. Credit card loans incur high interest and hence are a least opted one.
 
2.        Payday Loan
 
This might be the least popular unsecured loan. Individuals can seek payday loan to meet instant money requirements. The money lent has to be paid by the next pay day (that’s why the name payday loan). Interest rate for the loan is phenomenally high. One should not consider this loan if there is any other way to find funds.
 
3.        Education Loan
 
Education loan is specifically provided for students for pursuing different courses. The fact is, banks do not promote this loan due to varying reason. The procedure for education loan is also not an easy one.
 
4.        Personal Loan
 
Personal loans can be availed for a variety of purposes. The lenders would scrutinize the borrower’s reliability thoroughly. Credit history, CIBIL score, and the individual’s monthly income would be the determinant factors for approval, as well as, the amount approved.
 
Eligibility Criteria
 
Eligibility criteria for both secured and unsecured loans are different. It would also depend on the financers. Each finance firm would like to keep the risk minimal. Hence, they formulate the loan sanction process accordingly.
 
Eligibility Criteria for Secured Loans
 
The criteria and prerequisites are not strict as in the case of an unsecured loan. The following conditions must be met for approval of the secured loan.
 
·         The applicant must be of 18 years or older for applying for a secured loan
·         Value of the asset, including gold, property, and house, would be considered for the loan amount approved
·         The purpose doesn’t matter in case of secured loans like a gold loan
·         Some banks and NBFCs approve secured loans to individuals with a stipulated monthly income only
·         Credit history and credit score is not checked for secured loans like gold loan
 
Eligibility Criteria for Unsecured Loans
 
Eligibility criteria are different for secured and unsecured loans. The regulations and criteria are more stringent in the case of an unsecured loan. The elevated risk factors are the main reason that forced financers to observe a more complex process. Since there is no security with the financers, they have to ensure that the individual would be prompt in repayment.  
 
·         The applicant’s age is the first eligibility criteria to be met. The borrower must be aged between 21 and 65 years. Any person above or below this age cannot apply for an unsecured loan
·         A constant monthly income is mandatory. The monthly income would be an essential factor in deciding the maximum permissible loan amount
·         A self-employed person or an entrepreneur should have been in business for at least 05 years
·         A good credit score (a score above 700) is necessary for the banks to decide in favor of the applicant. A low or poor score may lead to rejection of the unsecured loan application
·         Credit history also plays a pivotal role in unsecured loan
 
Documents Required 
 
Documents required for a secured loan and unsecured loan differ. A secured loan doesn’t require much documentation generally. The paperwork is a bit more in the case of an unsecured loan. In turn, people have been reluctant to go for unsecured loans. Many a time, it is better to consider a secured loan than an unsecured loan.
 
Documents Required for Secured Loan
 
The documents required for the secured loan would depend on the type of secured loan you choose. Secured loans like gold loan don’t require many documents. If you are approaching us for a gold loan, only identity proof and address proof and the gold to be pledged are required for loan processing.
 
·         Identity Proof – Voter’s ID, driving license, Aadhaar card, PAN card, or Ration card
·         Address Proof – Ration card, attested bank passbook, electricity bill, phone bill, rental agreement, or bank account statement
·         Salary Proof – Salary slip, a bank statement indicating salary and Form 16
·         Proof of age – Voter’s ID, driving license, passport or birth certificate
·         Original documents of the collaterals
·         Audited business statement
 
Documents Required for an Unsecured Loan
 
The documentation part of unsecured loan may turn into a herculean task. Although the documents required are similar to a secured loan, compiling those and processing the complete file would consume several days.
 
·         Identity Proof – Voter’s ID, driving license, Aadhaar card, PAN card, or Ration card
·         Address Proof – Ration card, attested bank passbook, electricity bill, phone bill, rental agreement, or bank account statement
·         Salary Proof – Salary slip, a bank statement indicating salary and Form 16
·         Proof of age – Voter’s ID, driving license, passport or birth certificate
·         Original documents of the collaterals
·         Audited business statement
 
 
Benefits of Secured Loans
 
Secured loans are more beneficial than unsecured loans many a time. That has been the reason for secured loan applicants in a previous couple of years. Reliable financers like Manappuram offer exceptional service to the customers that will help them in pursuing the loan process without any difficulty.
 
Let’s look into the benefits of secured loans.
 
·         Credit score of the applicant doesn’t affect the loan approval. The NBFCs and banks are not much concerned about the credit history or CIBIL score of the borrower as they would be receiving collaterals in lieu of the money disbursed
·         Easy processing is the other benefit of a secured loan
·         The secured loans have a lower interest rate compared to most of the unsecured loans. Especially, the loans like personal loans, credit card loans, payday loans, etc have an exorbitant interest rate
·         Flexible repayment is another advantage on loans like a gold loan. The borrower can choose the most convenient repayment method
·         The income of the individual doesn’t have much importance per se. In turn, a lower income will not have any implication on the approval of a secured loan
·         Loans like home loans will provide tax rebates to the borrower
·         Online application is available for secured loans, in some reputed NBFCs like ours
 
 
Benefits of Unsecured Loans
 
Unsecured loans also possess some benefits. Those are:
 
·         The borrower doesn’t have to pledge anything for the loan. Therefore, he or she will not be losing the asset in case of default in repayment. This, in turn, enhances the confidence of the individual/ borrower
·         The higher the income, the higher the loan amount. The borrowing capacity depends on the financial strength and monthly income of the individual. Therefore, a person with a remarkable salary can obtain a better loan amount. On the other hand, the secured loan depends on the value of the property mortgaged
·         Credit score is a significant factor here. You can process the unsecured loan without any hassle if your credit score is high. Moreover, the loan sanctioning process would be fast
 
Manappuram Finance – Your Trusted Finance Support
 
We, at Manappuram Finance, consider our valued customers as our assets. Our endeavor is to always remain customer-centric with products and services that benefit the borrowers. Be it the gold loan application procedure, the loan processing method, or approvals, our systematic approach completes all the activities in the shortest time.
 
Customers can consider online gold loan applications if they are unable to come to the branch for the initial processing phase. Furthermore, we have introduced 13 gold loan schemes, with varying features and benefits. Our clients can choose the right one that suits them and proceed with the application process. Feel free to get in touch with our executives in case of doubts.
With lower interest rates and flexible repayment options, we offer a better value proposition to our customers. Consider Manappuram Finance if you are looking for gold loans to meet some urgent fund requirements. We are here to help you with all support.
 
To know more about our loan schemes, contact us now.

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