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What is Secured Loan?
When it comes to secured loans, it’s all about understanding how they can work for you! A secured loan allows you to borrow funds by offering collateral or security, including assets like a house, car or even gold. Secured loans often come with attractive benefits, such as lower interest rates and longer repayment terms, making them a popular choice for large purchases — whether it’s a mortgage, car loan or even debt consolidation. The reason for these benefits is that the lender assumes less risk due to the collateral provided.
In comparing a secured loan and an unsecured loan, secured loans stand out for their flexibility and lower interest rates. Unsecured loans, on the other hand, don’t require collateral but may come with higher interest rates as the lender bears more risk. Secured loans can also support business needs, like commercial mortgages or equipment financing. While it’s important to meet loan obligations to protect your assets, secured loans provide a way for both individuals and businesses to access the funds they need with added security for the lender.
Key features of a Secured loan
Here are a few key features of a Secured loan:
Access to Larger Loan Amounts:
Get higher loan amounts based on the value of your collateral
Flexible Loan Purposes:
Perfect for home improvements, debt consolidation or major purchases
Lower interest rates:
Enjoy more competitive rates compared to unsecured loans
Longer Repayment Terms:
Spread payments over an extended period for added convenience
Predictable Fixed Rates:
Fixed interest rates offer stable, manageable monthly payments
Easier Accessibility:
Collateral-backed loans can be more accessible, even with less-than-perfect credit
These key features highlight the benefits and risks associated with secured loans, allowing borrowers to make informed decisions about their financial options.
Eligibility For Secured Loan
To be eligible for a secured loan, you typically need to meet the following requirements:
Age: 19 Years to 55 Years
Income: Have a stable income or a steady source of income
Credit score: I Have a fair or good credit score (although some lenders may consider poor credit scores)
Collateral: Own an asset that can be used as collateral, such as a house, car or other valuable property
Debt-to-Income Ratio: Have a manageable debt-to-income ratio (lenders may consider this to ensure you can afford loan repayments)
Residency: Be a resident of the country or region where the lender operates
Additionally, lenders may consider other factors such as:
Loan-to-value (LTV) ratio: The percentage of the asset's value that you can borrow against
Asset condition: The condition and value of the asset being used as collateral
Loan purpose:The reason for taking out the loan (e.g., home improvements, debt consolidation)
Meeting these requirements doesn't guarantee loan approval, as lenders may have additional criteria. It's essential to check with the lender for specific eligibility requirements and to discuss your circumstances.
Documents required for a secured loan
Below are list of documents required for a secured loan:
Interest rates & charges for a Secured Loan
Here are the interest rates and charges for a secured loan in a table format:
| Fee type & Charges | |
|---|---|
| Interest Rates | 8.5% - 14.5% |
| Processing Fees | 1% - 2% of the loan amount |
| Loan Origination Fee | 0.5% - 1% of the loan amount |
| Late Payment Fee | 2% - 4% of the overdue amount |
| Foreclosure Fee | 1%-3% of the prepaid amount |
| Collateral Registration Fee | ₹1,000 - ₹5,000 |
| Stamp Duty | As applicable by the state govt. |
| GST | 18% on all fees & charges |
Note: Secured loans, including various types of secured loans such as mortgages, car loans and commercial loans, offer lower interest rates and longer repayment terms since the lender bears less risk. However, you risk losing your asset if you default. It's essential to understand the terms and conditions before signing the loan agreement, regardless of the type of secured loan you choose.
How to apply for a Secured Loan?
How Secured Loan Works?
- You borrow money: You apply for a secured loan and receive a loan amount from a lender.
- You provide collateral: You offer an asset, such as a house, car or property, as security for the loan.
- Lender places a lien: The lender places a lien on the collateral, giving them legal rights to seize the asset if you default.
- You repay the loan: You make regular payments, including interest and fees, to repay the loan.
- Lender releases lien: Once the loan is fully repaid, the lender releases the lien and you regain full ownership of the collateral.
- Default and repossession: If you fail to repay the loan, the lender can seize and sell the collateral to recoup their losses.
Secured loans offer lower interest rates and longer repayment terms since the lender bears less risk. However, you risk losing your asset if you default. It's essential to understand the terms and conditions before signing the loan agreement.
Secured loan EMI calculator
A handy tool to quickly estimate monthly payments for collateral-backed loans, making your budgeting and planning a breeze.
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FAQs on Secured Loan
‘Secured’ on a loan means the lender has a legal claim to a specific asset (collateral) if the borrower defaults, allowing them to seize and sell it to recover losses.
These loans can be a good idea if you need a large loan amount or lower interest rates but be cautious of risking your collateral if you default on payments.
Yes, CIBIL score matters for secured loans, as a good credit score can help you qualify for better interest rates and terms, while a poor score may lead to higher interest rates or loan rejection.
The interest rate for a secured loan typically ranges from 8.5% to 14.5% per annum, depending on the lender, loan amount, credit score and collateral value.
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