FAQ

Advantages & Disadvantages of Secured Loans

Advantages & Disadvantages of Secured Loans

Last Updated : May 18, 2020, 3:16 p.m.

To get cash to meet instant financial requirements, one applies for a secured loan. Against the security of assets like fixed deposit, insurance, etc, the lender provides you the sum. Your loan is based on the collateral you provide to the lender. No matter whether your credit history is good or poor, you can get the desired loan you need. Read this post to know what are the pros and cons of a secured loan.

Advantages of the Secured Loan

Lowest Interest Rate

You can get a lower rate of interest on a loan backed by collateral compared to an unsecured loan. This is because of the security you provide to the lender. The credit score may not hold importance, but if it is good, you may get the loan at a much lower rate.

High Loan Amount

The loan amount is fixed at about 80%-90% of the value of the collateral you submit to the lender. So, if the value of the collateral is quite high, the eventual loan disbursal amount could be higher and help you meet your needs efficiently.

Build Credibility

Yes, you can build your credit history faster by making timely payments of the secured loan. Because it shows how dedicated you are when it comes to paying the due on time. A good credit score lends credibility and makes you eligible for credits you may require in the future.

Disadvantages of Secured Loans

After knowing the benefits of the secured personal loans, you should look at the possible demerits this loan option can have for you to deal with.

Loss of Asset

From the beginning of the loan, the borrower should be aware of the risk associated with the borrowed amount. Because if you won’t pay for the loan, the lender may cease your security whatever you might have given to the lender.

Effect on Credit Score

The non payment not only leads to the loss of assets but it severely damages your credit score. Which makes it difficult for you to take a loan in the future.

So weigh all these before applying for a secured loan so that the repayment journey will be free from hassles.

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