Introduction to Secured and Unsecured Loans

Choosing between secured and unsecured loans in 2025 can be challenging. Loanpao breaks down their differences, helping you decide which suits your financial needs.

What Are Secured and Unsecured Loans?

Secured Loans

Loans backed by collateral (e.g., property, gold, vehicles), offering lower interest rates but risking asset loss on default.

Unsecured Loans

Loans without collateral, relying on creditworthiness, with higher rates but no asset risk.

Examples

  • Secured: Home loans, car loans, gold loans, loan against property.
  • Unsecured: Personal loans, credit card loans, education loans (some).

Comparison of Secured vs Unsecured Loans

Key differences in 2025:

Feature Secured Loans Unsecured Loans
Collateral Required (e.g., property, vehicle) Not required
Interest Rate Lower (7–11% p.a.) Higher (10–18% p.a.)
Loan Amount Higher (up to ₹50 crore) Lower (up to ₹50 lakh)
Tenure Longer (5–30 years) Shorter (1–7 years)
Risk Asset loss on default No asset risk, but credit score impact
Approval Easier with collateral Strict, needs high credit score

Note: Rates and terms vary by lender and applicant profile.

Pros and Cons of Secured Loans

Pros

  • Lower interest rates (7–11% p.a.).
  • Higher loan amounts (up to ₹50 crore).
  • Longer repayment tenures (up to 30 years).
  • Easier approval for lower credit scores.

Cons

  • Risk of losing collateral on default.
  • Lengthy approval process due to asset valuation.
  • Limited to asset owners.

Pros and Cons of Unsecured Loans

Pros

  • No collateral required.
  • Faster approval and disbursal.
  • Flexible use for any purpose.

Cons

  • Higher interest rates (10–18% p.a.).
  • Lower loan amounts (up to ₹50 lakh).
  • Requires high credit score (700+).
  • Shorter repayment tenures (1–7 years).

Tips for Choosing the Right Loan

Consider these factors:

  • Assess Your Needs: Choose secured for large, long-term needs (e.g., home purchase); unsecured for quick, smaller needs (e.g., medical expenses).
  • Evaluate Assets: Opt for secured loans if you own valuable assets.
  • Check Credit Score: Ensure a high score (700+) for unsecured loans.
  • Compare Rates: Use Loanpao to compare lenders for the best rates.
  • Plan Repayments: Use Loanpao’s EMI calculator to ensure affordability.

Frequently Asked Questions

Secured loans require collateral, offering lower rates, while unsecured loans rely on creditworthiness with higher rates.

Secured loans are easier to get with collateral, even with lower credit scores.

The lender may seize the collateral (e.g., property, vehicle) to recover the loan amount.

It’s challenging; unsecured loans typically require a credit score of 700 or higher.

Loanpao connects you with verified lenders, offers EMI calculators, and provides guidance to match your needs.