By now, we all are well-aware of the fact that there are multiple varieties of loans in the market, ranging from main categories such personal loans, home loans, business loans, etc. However, within each of these categories is a stark bifurcation between loans as well. A loan is always either a secured loan or an unsecured loan. In our article on the difference between secured loans and unsecured loans, we learned how both these categories are different from each other in terms of amount, tenure, interest, etc.
In this article, we’ll be going over the advantages that both these types have, over each other in different situations:
1) You don’t have an asset to pledge as collateral
One of the best times to consider going for an unsecured loan is when you don’t have any asset to pledge as collateral. Collaterals are mandatory to apply for secured loan. However, it isn’t so in terms of unsecured loans.
2) Your principal amount is higher than ₹ 25 Lakhs
The maximum amount of credit that can be availed with an unsecured loan is ₹ 25 lakh and hence, if the amount that you need to borrow is higher than ₹ 25 lakh, then you have to apply for a secured loan. However, to your benefit, a secured loan would also offer you a longer tenure of repayment for the loan.
3) You’re in urgent need for credit
If you’re urgently in need of credit, especially to pay off debts, bills or any other necessity, it’s best to apply for an unsecured loan. Due to lesser processing time, the disbursal of an unsecured loan is much faster than that of a secured loan. An unsecured loan would also provide you with flexibility in terms of the usage of the funds.
4) You want to increase your credit score
If you plan on building your business a few years into the future, you would require your credit score to be quite high so that you can borrow higher amount of credit for whenever in need. Hence, its best to start off by applying for unsecured loans timely EMI payments of which can boost your financial credibility.
5) You need a loan but don’t wish to pay a higher interest rate
If you require a loan that you don’t wish to pay a high interest for, it’s best to apply for a secured loan. A secured loan offers a very low interest rate along with a higher tenure. This increases your flexibility in paying the EMI with low interest, through a longer period.
There are many such instances when you may wonder which loan suits your needs best. However, keeping in mind the above points, it shouldn’t be tough for you to make a decision that best works for you and for your business.