A Personal Loan is the most sought after loan by individuals today, and has been so across time. Whether you are planning to start a business or are planning to get married, or are looking at remodelling of your home or need assistance in a time of a financial crisis, Personal Loan is a solution; one that helps meet most of financial needs or emergencies that you can think of.

Today, thanks to the continuous advertising & marketing that we are bombarded with, whether it be via a television, a hoarding, an ATM popup or a phone call, if you are planning to take a Personal Loan, you have a considerable number of options to choose from. However, these ads and marketing professionals don’t believe in educating you. An educated borrower isn’t as easy as an ignorant one. He understands his options, he asks questions like what is an interest rate and how much can I borrow at the optimum, and he knows when he is being bluffed.

A quick tour through the two types of Personal Loans (Secured & Unsecured Loans) will not be enough, but it will still be a starting point. It might help you answer basic questions like how to get a loan, how much loan can I get, how to qualify for a loan, what do I need to get a loan, etc. By scrutinizing the particulars of both these types of loans, let us understand the pros and cons of them both.

Banks have special categories for individual loans such as a Home Loan for assistance in buying a house or a Car Loan for assistance in purchasing a car. There are options for SME Finance like Secured & Unsecured Business Loans and Loans for Commercial Property for businesses with different requirements. For all other requirements, from luxury to emergency, you can opt for a Personal Loan. As the name suggests, a Personal Loan is a loan taken by an individual for any personal purpose.

Secured Personal Loan:

Under the Secured Personal Loan category, an individual can apply for a loan on the basis of a security. The quantum of the loan you are eligible for is determined by the value of the asset he is mortgaging. This loan type is hence said to be quite similar to a mortgage loan. The collateral security is taken as an assurance against the money disbursed by the financial institution so that in case you fail to repay the loan, the financial institution fortifies it.

Unsecured Personal Loan:

The answer to what is an unsecured loan lies in the name itself. Unsecured Personal Loan is the most common type of Personal Loan where you are not required to pledge any asset as collateral security. Your credit history and your Income tax returns are the criterions that determine your repayment capability to the lender, on basis of which your loan amount can be defined.

Benefits:

One of the major benefits of a Secured Loan or a mortgage loan is the interest rate levied. For a lender, a collateral security works as a guarantee for the repayment of his loan, which in turn means lower risk. Hence, the interest levied on a Secured Loan is lower as compared to an Unsecured Loan.

Another benefit is that a Secured Loan facility can be availed by someone with a not so good credit rating. How to get a mortgage with bad credit is a commonly asked question by the people suffering from a credit issue. For a Secured Personal Loan, since the lender has collateral security, credit scores often get a consideration.

In case of an Unsecured Loan, the paramount benefit is that you need not worry about your personal assets being mortgaged for the loan. Since there is no collateral security, the processing time is low, at times even as low as 24 hours.

For both types of loans, the documentation required is minimal and the processing time of the loan is quite quick as compared to other loans like Home Loan, Car Loan or Business Loans. Also, there is a flexibility of use with the borrower.

Drawbacks:

Despite the apparent attractiveness, there are a few drawbacks in both Secured Loans as well as Unsecured Loans.

The most evident drawback of a Secured Personal Loan is the loss of the asset kept as collateral security in case of non-repayment.

The biggest disadvantage of an Unsecured Loan is the higher rate of interest levied as compared to the Secured Loan. Another is that you need to have a good credit rating to qualify for an unsecured loan.

The above discussion does not support one form of lending over the other. The purpose is to go on board for a reasonable study between Secured Loans and Unsecured Loans so that potential borrowers like you have a perfect depiction of the pros and cons of various lending practices in the personal loan category.

Also, which type of loan should you opt for more or less depends on your circumstances

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