| Definition |
A loan backed by collateral (asset) such as property, gold, or vehicle. |
A loan that does not require any collateral or asset pledge. |
| Collateral Requirement |
Yes, the borrower must pledge an asset. |
No collateral is required. |
| Examples |
Home loan, car loan, loan against property, gold loan. |
Personal loan, credit card loan, education loan (in some cases). |
| Interest Rates |
Lower interest rates due to reduced lender risk. |
Higher interest rates due to increased lender risk. |
| Loan Amount |
Higher amounts, based on asset value. |
Usually lower, based on income and credit score. |
| Risk to Borrower |
Risk of losing pledged asset if repayment fails. |
No asset loss, but credit score may be heavily impacted. |
| Credit Score Dependency |
Less dependent on credit score if strong collateral is available. |
Heavily dependent on credit score and financial profile. |
| Approval Time |
Longer due to asset evaluation and verification. |
Faster, as no asset verification is needed. |
| Tenure |
Longer repayment periods (up to 30 years for home loans). |
Shorter tenure (generally 1–5 years). |
| Loan Disbursal |
After collateral verification and paperwork. |
Quick disbursal, often within 24–48 hours. |
| Documentation |
Extensive documentation including asset ownership papers. |
Minimal documentation – mostly KYC and income proof. |
| Repayment Flexibility |
More flexible with options like top-up and restructuring. |
Less flexibility; penalties may be higher on default. |
| Loan Security |
More secure for the lender due to tangible backup. |
Higher risk for the lender due to no backup asset. |
| Processing Fees |
May be lower as risk is reduced. |
May be higher to compensate for unsecured nature. |
| Impact of Default |
Asset may be seized or auctioned to recover dues. |
Legal action and credit score drop; no asset seizure. |
| Usage Flexibility |
Restricted to the purpose linked to the asset. |
Can be used for any personal need. |
| Tax Benefits |
Applicable for certain loans like home or education loans. |
Generally no tax benefits unless used for specific purposes like education. |
| Loan-to-Value (LTV) Ratio |
Based on collateral value; LTV ratio applied. |
Not applicable. |
| Best Suited For |
Individuals with valuable assets and need for large loans. |
Individuals needing quick funds without asset pledging. |
Secured Loan vs Unsecured Loan