Secured vs. Unsecured Loans

While looking for a loan, we generally do all the primary research needed to ensure we get the best financial solution that matches our needs. Right? Therefore, the category of loan is divided into two: Secured Loans & Unsecured Loans. Both of these have their significant advantages and disadvantages. Hence, before considering a loan, you must understand its types and select the one that suits your requirements.

To know what suits you the best, let’s quickly check out the parameters associated with Secured Loans & Unsecured Loans. Grab your coffee and stick to the end!

What is a Secured Loan?

A Secured loan is a type of borrowing that is backed by some collateral. In simpler terms, you need to submit your valuables against the loan amount you will receive from the bank. This collateral acts as security to the lenders. When the loan amount is not paid back on time, the lender has the right to seize your collateral and retain the loan amount lent to you.

What is an Unsecured Loan?

An Unsecured loan is a type of borrowing that is not backed by any collateral. The lenders set strict lending and eligibility criteria, such as checking credit scores, running through past debt history and more, to ensure safety of the money lent.

Here are the top differences between Secured Loans vs. Unsecured Loans

Nature of Difference	Secured Loans	Unsecured Loans
Definition	Loan that is backed by collateral.	Loan that is not backed by any collateral.
Amount	The borrower can get higher loan amounts based on the collateral provided.	Lower Loan Amount as compared to Secured Loan.
Cost of Borrowing	You can get the loan relatively at lower Cost of Borrowing, due to reduced risk.	Cost of Borrowing is relatively higher than usual due to increased risk.
Turnaround Time	Longer approval time due to collateral valuation.	You can have quick access to funds as there is no collateral involvement.
Borrowing Limits	Higher borrowing limits due to security.	You can only avail a small amount of loan.
Eligibility Criteria	Highly depends upon the collateral value of the borrower.	Usually, unsecured loans have more stringent criteria-  based on income stability and creditworthiness.
Repayment	Longer repayment tenure	Short repayment period
Need of Loan	Secured Loan is ideal for fulfilling long-term financial needs.	Unsecured Loan is ideal for fulfilling short-term financial needs.
Risk	Lower risk for the lender as the collateral can reduce the chances of risk. Huge loss for the borrower of losing the collateral if the loan amount is not paid on time.	Higher risk for the lender, as the loan amount is not backed by collateral. No risk for the borrower of losing any collateral.

Are Personal Loans Secured or Unsecured?

Personal loans are generally unsecured short-term loans. These loans are easily accessible when your Bureau Report has good creditworthiness. Unsecured Personal loans feature smaller loan amounts, are easily repayable, are easy to access, and do not require collateral for the security. However, these lenders run through credit history and perform past debt history.

The Bottom Line…

As we have reached the bottom of this blog, the end note is to identify the needs and expectations you want to fulfil using a loan. Before approaching any loan, you must be mindful of your monthly income and spending. This analysis will help you choose the best option, which can be a ladder to your financial success.

If you are looking for a quick, unsecured loan solution, Lenditt is one of the fastest loan-approving online loan apps in Ontario, Canada. Our digital loan process is backed by advanced AI & ML technology to give you a smooth flow of the loan process and quick disbursement of cash directly into your bank account. We, as lenders, have kept our criteria flexible to serve a wide segment of people coming from different financial backgrounds.