Borrowers of secured loans must put up an asset or other security as collateral before the loan may be disbursed. As such, secured loans are those in which the borrower provides collateral, such as an asset or piece of property. If the borrower cannot repay the loan within the agreed-upon time frame, the lender will benefit from the collateral. So, a few secured loans are gold loans, loans against property, loans for vehicles, loans for houses, etc. Meanwhile, a secured personal loan is a secure passage if you urgently require access to a large sum of money.
Non-recourse loans are a form of secured loan that shield the buyer from liability. Apart from the collateral, the bank has no additional claims against the borrower under the terms of this loan.
So, when payments on a piece of property (such as a car) are past due, the lender has the right to reclaim the item (called “repossession”). This includes financing for both personal vehicles and company assets. If you acquire a car with a loan and can’t keep up with the payments, the bank can repossess the vehicle and lose whatever EMIs you’ve already made. Likewise, foreclosure refers to the legal procedure by which a lender sells off collateral to satisfy a debt that has gone into default.
The Pros of a Guaranteed Loan
Compared to unsecured loans, secured ones come with several advantages. You can use a secured personal loan to get:
- Confidence that you will maintain your collateral means that the bank may offer you a lower interest rate. You will get cheaper interest rates if your borrowing institution is sure of your creditworthiness. It also means less strain on your earnings in the long run, making payments more straightforward.
- The lower liability and risk allow the bank to approve more significant loan amounts. The value of the collateral asset will be used to determine the maximum loan amount approved by the bank.
- They have lower interest rates and other bank benefits. Simpler and cheaper (or even accessible) processing, quicker paperwork and approval, and more accommodating conditions don’t leave you high and dry in case of a problem.
- If you unexpectedly come by a large sum of money, wish to conclude your loan early, or want to prolong the duration of your loan, you can do so without incurring any fees or penalties. Secured loans allow you to prepay your debt, but unsecured ones don’t.
- You can make a payback schedule that may be altered to fit your budget. You can pay off your loan more quickly by making larger EMI payments over a shorter time frame, or you can pay it off more slowly by making smaller payments over a longer time frame. And to whatever extent you retain ownership of the collateral asset in question, the decision is yours to make.
- You may still qualify for a loan even if you have a low CIBIL score or no credit history. Whether or whether the bank believes you will be able to repay your loan becomes moot once collateral is involved. They require CIBIL and credit history data to gauge their risk, but with an asset at stake, they are sure they are safe.
- Tax deductions for interest can let you keep more of your hard-earned cash.
- Since this is also an indicator of your capacity to repay, the minimum income required is far lower than for unsecured Loans.
