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The Pros and Cons of Secured Loans

By: Anshika Bajpai

Last Updated: February 13, 2019, 12:25 IST

Image for representation.

Image for representation.

Secured loans are the ones that are backed by an asset or equipment called the collateral.

Imagine you go out to buy your dream house in Mumbai. The amount of money that you have might either not be enough for a sea-facing bungalow or you don’t have enough cash available for immediate use. What do you do? You ask for a loan from your bank. Your bank agrees to give you a loan but on one condition.

They ask you to back that same home as collateral against your loan until you pay back the bank with the interest charged. And since you accept their offer, the bank also levies a lesser amount of interest than unsecured loans. You accept the terms and that’s how secured loans work.

Hence, secured loans are the ones that are backed by an asset or equipment called the collateral. The collateral is very important here since the lender can feel secured till the time he gets back his entire money. If in case you can’t pay back your loan, the lender can easily sell the collateral and get his money back.


● The most obvious one is that it comes with lesser interest and is more likely to get approved easily. Since the lender has the collateral to fall back on, they are more inclined to give these kinds of loans even if it means getting lesser interest.

● You don’t need to have a great credit score when asking for a secured loan.

● Without secured loans, your lives would be a lot different. You would not be able to take big loans to get your favourite car or buy your dream house since not many people would give such a huge sum of money as unsecured loans.

● Without secured loans, you would need to be very rich or have an amazing credit score to get a loan. So if you are an average income class person, getting a loan would have been a herculean task.


● If you become a defaulter after taking a secured loan, you are sent to collections. And no one wants to get sent to collections.

● Even worse, if you default on your mortgage, you get evicted and if you default on an auto loan, your car gets impounded. And you definitely don’t want that.

● Although the interest rates are lower in secured loans, the risk for the borrower is quite high.

So before you take a secured loan, determine if you qualify for it or not, check the current rate of interest and see if it is affordable to you. A very important thing is to choose a reputable bank or lending institution that will provide you with as much information as you need before filling in your application. These measures will ensure you manage and plan your finances accordingly and not regret taking a loan later on.

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This content has been created in association with YONO SBI.

first published:February 08, 2019, 16:34 IST
last updated:February 13, 2019, 12:25 IST