Loans are broadly classified into secured and unsecured categories. The distinction is fundamental and affects interest rates, approvals, loan quantum, and legal recourse in case of default. Borrowers should understand these differences to select suitable financing.
A secured loan is backed by collateral�property, fixed deposits, or other assets. Collateral provides lenders with recovery options and typically results in lower interest rates and higher loan-to-value ratios.
An unsecured loan is granted without collateral, relying chiefly on borrower creditworthiness and income. These loans offer faster disbursal but at a higher cost due to the increased credit risk for lenders.
The choice between secured and unsecured loans should align with borrower liquidity, risk appetite, and asset availability. Secured loans support larger purchases at lower cost, while unsecured loans provide convenience and speed.