When you need to borrow a big amount of money, secured loans can be a good option. They usually come with lower interest rates, but you have to offer something valuable like your house, card, or savings as collateral.
Looks scary to imagine right? But don’t worry! In this article, we will break down secured loans in a simple way. By the end of the article, you will learn about Secured Loans in India and when they are most useful to help you make smart and wise decisions for your financial goals.
What are Secured Loans in India
A secured loan is a type of loan where you give something valuable like your property, gold, fixed deposit, or vehicle, to the lender as a security, which is called collateral. This means if you don’t pack back the loan, the lender can take that item to recover the money.
Because the lender has less risk, secured loans usually have lower interest rates, longer time to repay, and you can borrow a bigger amount compared to unsecured loans.
When Are Secured Loans a Good Option?
Here are the most common and smart situations where taking a secured loan makes sense:
1. Buying a Home or Car
If you’re planning to buy a home or car, secured loans like home loans or car loans are the best choice. These loans are backed by the house or vehicle, so banks can offer higher loan amounts and longer repayment time.
2. Need a Large Loan Amount
If you need a big loan like ₹10 lakh or more, then a secured loan is usually the best option. You can get a loan against property or fixed deposits, depending on what asset you can give a security, which is called collateral.
3. Want Lower Interest Rates
Secured loans usually have lower interest rates than unsecured loans like personal loans or credit cards. For example, a personal loan may charge 11% – 18% interest, while a loan with collateral might only charge 8% – 10%.
4. Have a Low CIBIL Score
If your credit score is low, it may be hard to get unsecured loans. But banks might still give you a secured loan if you can offer something valuable as security. It is a smart way to get money and slowly improve your credit score.
5. Need Flexible Repayment Terms
Secured loans usually give you more time to repay, sometimes from 5 to 30 years, which totally depends on the type of loan. This means your monthly EMI is lower, so it is easier to handle your budget.
Benefits of Secured Loans
Here are some key benefits of secured loans:
- Lower Interest Rate: Since the ban has less risk, you get the loan at a cheaper rate.
- Higher Loan Amount: You can borrow more money depending on how valuable your asset is.
- Flexible Tenures: You can pick how long you want to repay by choosing short-term or long-term.
- Better Approval Chances: even if your income is low or your credit score is weak, your loan may still get approved.
- Useful for Asset-Rich, Cash-Poor Individuals: If you don’t have enough cash but you have things like gold or property, the secured loans help you use your asset without selling it.
Risks of Secured Loans
Here are some of the risks to keep in mind before applying for secured loans:
- Asset Seizure: The bank can take your house, car, gold, or whatever asset you provided, if you don’t repay the loan in time.
- Longer Approval Time: It may take longer to approve your loans, because the bank needs to check the assets and legal details first.
- Costs Involved: To approve your secured loans, you might have to pay extra charges like legal fees, or processing charges.
- Over-Borrowing Risk: Just because you can borrow a big amount of money as a secured loan, doesn’t mean you should. Borrow only according to your needs.
Tips Before Applying for a Secured Loan
- Ask a trusted expert to check how much your asset like property or gold is really worth. This helps you know how much loan you can get.
- Don’t go with the first offer you get. Compare interest rates, fees, and benefits from different banks or NBFCs and pick the best deal for you.
- Read all the terms and conditions carefully and understand all the rules before applying for a loan.
- Your credit score affects loan approval and interest rate, make sure your report is correct and try to improve it before applying.
- Don’t take a bigger loan just because it is offered to you. Borrow only what you actually need and can repay without stress.
Conclusion
Secured loans can be a good way to borrow money if used carefully. They usually have lower interest rates, let you borrow more money, and give you flexible repayment terms. You can use a secured loan to buy a home, start a business, or combine high-interest debts into one.
But there is one big risk – you could lose your asset like your house or car, if you can’t repay the loan.
So, always check if you can manage the repayments and pick a trusted lender. With proper planning, secured loans can open up useful financial opportunities without using up all your savings.
FAQs
What is the difference between a secured loan and an unsecured loan?
A secured loan asks for something valuable like property or gold as collateral. An unsecured loan doesn’t need any collateral. Because of this, secured loans are less risky for the bank and they usually have lower interest rates with big amounts.
Is a secured loan easier to get approved?
Yes, since you are offering collateral to the bank, they feel safe and are more likely to say yes, even if your credit score is not so good. But still you need to show that you can repay the loan.
Can I lose my asset if I fail to repay a secured loan?
Yes. If you don’t pay back the loan amount in time, the bank can take your collateral and sell it to get money back. So only borrow when you are sure that you can repay.
What are common assets used for secured loans?
Usually, people use things like their property, gold, fixed deposits, vehicles, or sometimes even stocks or insurance policies as collateral.
Are secured loans suitable for small business owners?
Yes. Many small businesses and MSMEs take secured business loans by using their property, machinery, or other assets to get money for working capital and at a lower interest rate.