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Secured loans are loans under which a borrower pledges an asset or property as security against loan repayment. The lender has the advantage of the collateral if the borrower fails to repay the loan in the stipulated time. Gold loans, loan against property, auto loans, home loans etc., are some of the examples of secured loans.
About Secured Loans
Secured loans are generally taken for many reasons -
Specific features of secured loans differ from one lender to another. They may also differ depending on the purpose of the loan. However, the general features of any secured loan are -
The following types of secured loans are available in India -
While different institutions have different criteria, the following is a general guideline for eligibility for secured loans -
In general the following documents are required to take a loan -
This list is indicative and may vary from time to time, lender to lender, and loan to loan.
There are many benefits to taking a secured loan. Some of them include -
Lower Interest Rates -
Secured loans carry lower interest simply because the loan is secured against the collateral supplied. In case the borrower fails to repay within the stipulated time, the loan is foreclosed and the balance is recovered from sale of the asset offered as collateral. For the borrower this means lower EMI and lesser financial risk. Of course if your asset does not cover the balance then the lender will hit upon your personal finances but this rarely occurs since most lenders only offer a percentage of the asset value as loan.
Larger amount of loan
Once again, because of the security offered by the collateral, such as car or home, it becomes possible to take larger amount of loan. Since the lender’s liability is covered by the collateral, lenders do not usually scrimp on loan amount. This is of course subject to certain conditions such as minimum term or maximum age of the borrower. These terms are in place to ensure that the borrower will be able to repay the loan within the stipulated time.
Better and more flexible terms
Processing is faster for secured loans since both the borrower and the lender know that the loan is secured by collateral. This means that banks and other lenders do not dig too deep into the borrower’s creditworthiness. There is however certain criteria to ensure that the borrower will repay the loan amount as well as interest. Most banks also have lower penalties for foreclosure, extension of tenure, and failure to meet EMI dates. Some lenders insist on a minimum term before they allow you to close your loan prematurely. While these terms obviously offer better security to the lender, it also means lower risk and better capital management for the borrower.
Can be used for debt consolidation
Secured loans are ideal in situations where you have taken a number of short-term loans for various purposes and have several EMIs going out of your pocket. Having a large number of outstanding loans can reduce your CIBIL score - credit score - and prevent you from taking further loans. In such situations, keeping a valuable asset as collateral and taking out a large secured loan to pay off all the other loans can not only improve your credit score but also reduce the EMI besides making it easier to pay back a single lender. Also improving your CIBIL score can help you get new loans in future.
Of course on the flip side, taking a secured loan means handing over your asset to the lender who will repossess it in the event you are unable to meet the terms. In this sense, secured loans may be viewed as risky. Secured loans also involve more paper work since you have to write over the collateral as well as provide all the required loan documents. And finally coming up with an asset equal to or exceeding the amount of loan may be a challenge in the first place.
Interest on secured loans is considerably lower than that on unsecured loans. However different lenders such as banks and NBFCs offer different rates of interest. Interest rates may also vary depending on the amount of loan, purpose, and the asset offered as collateral.
Application process varies from one institution to another. However the general steps you need to take if you want a secured loan are -
If everything is in order, your loan will be disbursed within a short time.
With the large number of options available, it can be a bit daunting to choose the right lender. Here is a list of top 5 banks in India offering home and car loans using the property as collateral along with rates of interest.
It must be understood that these rates are indicative and subject to change at any time. Please contact the concerned bank for current rates as well as terms of loan and other information.
1. Can I get a secured loan with low credit rating?
Whether or not you can get a secured loan with low credit rating depends on the lender, the terms of the loan and some other factors. However since the lender has your asset as collateral, it is possible that the loan may be approved even with low credit rating.
2. Will I need to make arrangements for a guarantor to get my secured loan approved?
Terms of loan vary from one lender to another. While some banks and NBFCs insist on a guarantor, others will not do so if other conditions are favorable.
3. What should be the value of the asset offered as collateral?
Most banks offer 70% to 90% value of collateral as loan. This can vary depending on other eligibility factors as well as the specific terms under the loan.
4. How long will I have to pay EMI on my secured loan?
You can choose the term of your loan however approval and amount of EMI will depend on your income and certain other factors.
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