Are Personal Loans Secured or Unsecured?

"Are personal loans secured or unsecured? Knowing the differences between secured and unsecured personal loans is essential for making financial decisions."

personal loans secured or unsecured

4 mins read

Published: 30 October 2023

Updated: 30 October 2023

The article shall answer your question of whether is a personal loan secured or unsecured. Let's begin with what is a personal loan. A personal loan is a type of financial aid that is provided by the registered banks and the NBFCs to the potential borrower. If a borrower completes documentation and falls within the eligibility criteria for the personal loan then the process becomes smooth. The interest rate for the personal loan starts from 10.50% P. A and it can go upto 15% P.A. The eligibility criteria for the personal loan include a credit score of more than 750 and a stable income can help you to get a personal loan.
The question here is whether personal loans are secured or unsecured. So the answer to this question is that most personal loans are unsecured but there are certain banks and NBFCs that can provide secured loans for personal purposes. A personal loan is a good option if you are low on money and suddenly have unannounced expenses. In addition, these loans can be easily approved and disbursed through the online process.

Secured Personal Loans

A secured personal loan is one that is backed by the collateral. That means you need to pledge security to the bank or NBFCs. This collateral serves as a safety net for the lender in case the borrower defaults on the loan. Mentioned below are the collateral that you can provide for taking an instant personal loan online:

1. Real Estate: If you have a home in your name then it can serve as the collateral for larger personal loans. In such cases, if the borrower defaults, the lender can potentially take possession of the property through foreclosure.

2. Vehicles: Car loans are a prime example of secured personal loans. If the borrower fails to repay, the lender can repossess the four-wheeler.

3. Savings or Investments: Some lenders accept savings accounts or investment portfolios as collateral. In this scenario, the lender can access these assets to recoup their losses if the borrower defaults.

Advantages of Secured Personal Loans

1. Low-Interest Rates: Lenders feel more secure knowing there's collateral, so they tend to offer lower interest rates compared to unsecured loans.

2. Higher Loan Amounts: As there's collateral at stake, lenders may be willing to lend larger sums of money with secured loans.

3. Easier Approval: People with lower credit scores or less favorable financial histories may find it easier to get approved for secured loans.

Disadvantages of Secured Personal Loans

1. Risk of Losing Collateral: If you fail to make payments, you could lose your property or other assets used as collateral.

2. Higher Costs Over Time: Although interest rates are lower, the overall cost of the loan could be higher because of the extended repayment period.

Unsecured Personal Loans

Unsecured personal loans do not require collateral. Instead, lenders approve these loans based on the borrower's creditworthiness, income, and other financial factors. Common examples of unsecured personal loans include:

1. Signature Loans: These loans are provided just on the basis of your identity and creditworthiness because no collateral is involved. 

2. Credit Cards: Credit cards function as a revolving line of unsecured credit. You can use them for various purchases and pay off the balance over time.

Advantages of Unsecured Personal Loans

1. No Collateral Risk: You won't risk losing your property or assets if you default on the loan.

2. Quick Approval: Unsecured loans often have faster approval processes, making them suitable for emergencies or immediate financial needs.

3. Flexible Use: You can use the funds for any purpose without restrictions.

Disadvantages of Personal Loans

1. Higher Interest Rates: Unsecured loans typically come with higher interest rates because lenders assume more risk without collateral.

2. Stricter Eligibility: Lenders often require a higher credit score and a more robust financial history for unsecured loans.

3. Lower Loan Amounts: The loan amount may be lower compared to secured loans.

What to choose between Secured and Unsecured Personal Loans?

The choice between a secured and unsecured personal loan depends on various factors:

1. Credit Score: If you have a high credit score, you may qualify for favorable terms on an unsecured loan. However, if your credit is less than ideal, a secured loan may be more accessible.

2. Risk Tolerance: Consider how comfortable you are with the risk of losing collateral in case of financial hardship. Secured loans are riskier in this aspect.

3. Loan Purpose: Think about the reason you need the loan. If you're funding a home improvement project, a secured loan using your home's equity might make sense. If it's for a smaller, more immediate need, an unsecured loan could be the better choice.

4. Loan Amount: Your financial need will also influence the type of loan you choose. If you require a substantial sum, a secured loan might be the only feasible option.

5. Interest Rates: Compare the interest rates and fees associated with secured and unsecured loans. Factor in the overall cost of borrowing.

6. Repayment Period: The length of time you need to repay the loan can also influence your decision. Secured loans may offer longer repayment terms, but this could mean paying more in interest over time.


Personal loans, whether secured or unsecured, can be valuable financial tools when used responsibly. Your choice should align with your financial circumstances, credit history, and specific borrowing needs. Be sure to thoroughly research and compare loan offers from multiple lenders to secure the most favorable terms and conditions. Understanding the key differences between secured and unsecured personal loans is essential for making informed financial decisions and managing your finances effectively. Top fintech companies like My Mudra are one such financial aid agency that makes the task of taking personal loans easy.

Also read: Get your Personal Loan Approved with a Low CIBIL Score

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