Secured Personal Loan or Unsecured Personal Loan: Which One to Go for?

Updated on: 22 Jan 2024 // 4 min read // Personal Loans
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Whenever our finances press us due to an emergency or an unplanned expense, we turn towards the Personal Loan option, as that has become a very approachable and convenient option these days. You apply online and with minimal documentation, within a couple of hours, your loan is approved and the money is transferred to your bank account. However, one question that keeps hovering in our minds is whether we should go for a Secured or an unsecured personal loan. Before talking about which one to opt for, we need to understand the basic difference between the two.

What is a Secured Personal Loan:

A secured loan is a loan taken in lieu of collateral or security. You will need to pledge an asset to get the loan from the bank or financial institution. A secured personal loan is generally opted by people with low or average credit history who are aware that getting an unsecured loan would be difficult for them. The interest rate on a secured loan is also much lower than the unsecured loan as the risk to the bank is much lower. The bank can easily seize the asset and retrieve its money in case the borrower defaults making the payment.

What is an Unsecured Personal Loan:

An unsecured personal loan is something that is taken without any collateral or security. It is given purely on the basis of the individual’s credit rating and monthly income. The risk is obviously very high on the bank’s end as they have nothing to acquire if the person defaults and hence the interest rate of such unsecured personal loans is always on the higher side as compared to the secured loan.

Secured Personal Loan or Unsecured Personal Loan: Which One is Better?

There is nothing good or bad in both the loan types else banks wouldn’t be promoting them; it only depends on our requirement and which one suits the requirement.

If we talk about secured personal loan, it is more beneficial when it comes to the interest rate. While it eases your pocket from the interest payback perspective, one has to be very careful to pay the equated monthly instalments (EMIs) on time and never let the pledged security be seized by the bank, else you will lose out on the secured asset.

For example, in case of a Car Loan, the bank can take possession of the car and retrieve its cost by selling off the car and same is followed in case of Gold Loans or Property Loans as well. In case you default making payments towards your Loan Against Property, the bank takes possession of the house. It is very easy to get a secured loan, however you just need to use it judiciously since there is always a risk of losing out on your hard earned assets in case of any inadequacy in paying back the EMIs.

When we talk about unsecured personal loan, the best part is that you don’t need to pledge any of your assets for that; you get one on the basis of your creditworthiness. Any default in this type of loan is also not advisable; however, at least it does not carry a risk of your asset being taken away from you forever. Although a default here could mean higher interest charges, penalties, and also substantial downgrade on your current credit score. Hence it is advisable to not go for any loan unless you can pay it back on time.

A secured loan should be availed by someone who is low on credit score or when you know that banks would not approve of an unsecured loan due to a recent default. In such a situation, pledging an asset or property and taking the loan only comes to mind as the first option. People with good credit rating and a decent annual income should opt for unsecured personal loans only instead of risking their property or asset as custody.

Many banks offer unsecured personal loans without collateral and you can also apply online. One such very good option is SBI Personal Loan. They help you in your loan requirements with minimal documentation and fast processing of the loan. Moreover if you are an existing SBI customer, you also win a chance to get a preapproved loan without any documentation.


Both secured and unsecured loans have their own merits and demerits. While on the one hand the secured loan comes with a lower rate of interest, it also puts you through a constant risk of losing out on your property. On the other hand, while the unsecured loan gives you your required amount without collateral or security, it charges you higher interest and also you need to be able to qualify for it basis your credit score.

Hence, it is always advisable to polish your credit score first and keep a close eye on it such that you can easily get a loan whenever required without any security. Moreover, if you have a good credit history with a good annual income, many banks and non-banking financial companies (NBFCs) also issue unsecured personal loans at lower interest rates. So you can make the best use of it then.