Unsecured Or Secured Loans – Which One Is Better In Case Of A Financial Emergency And Why?

 

Just like the two faces of a coin, everything has its respective pros and cons. The same thumb rule applies when it comes to taking a loan. 

Loans can be secured or unsecured. 

Where secured loans are availed by extending an asset against them, in the form of property, gold, bonds, or securities, unsecured loans do not require any collateral security for authentication. 

With the growing demands in lifestyle, the cash-only system of meeting one's expenses is taking a back seat, thereby providing more room for most to rely on credit to bear the burdens of life. 

Especially for big-ticket items like purchasing a home, renovating your house, or financing your child's higher education, most of us fall back on loans from banks, either the secured way or the unsecured way. 

Which Loan Works Better For Emergencies?

When looking for immediate cash requirements, with nothing to pledge as security, the best option is to avail of an instant personal loan through an instant loan app. This kind of loan is best suggested when there are smaller amounts needed. 

However, suppose one has a security to trade-in/mortgage against a loan and needs huge money. In that case, it is better to go in for a secured loan because the latter charges lesser interest rates than the former. 

Differences Between Secured and Unsecured Loans

Secured loans are backed by some asset, or collateral, which stands pledged with the lender, while unsecured loans are not supported by any asset or collateral.

Secured loans come with comparatively lower rates of interest to be paid against the loan taken, while unsecured loans have relatively higher interest rates. 

Since secured loans have collateral that needs to be valued, it may take time to process these. Unsecured loans, on the other hand, involve no such valuation and hence can be processed very fast.

The loan sanction depends on the borrower's income, the value of the asset mortgaged, and other existing loans. In the case of an unsecured loan, the approved amount of the loan is ascertained based on the borrower's income, credit score, and other existing loans. 

A secured loan can be approved even if the borrower has a low credit score, but an unsecured loan will get approved only if the borrower has a high credit score. 

The loan amount depends upon the underlying collateral when opting for secured loans. In contrast, in the case of unsecured loans, the loan amount is decided after considering the borrower's income and repayment capacity. 

The loan tenure is longer in secured loans, but unsecured loans come for shorter tenures, generally lasting from 1 to 3 years. 

Some examples of secured loans are loans against property, loans against fixed deposits, gold loans, loans against securities, etc. Examples of unsecured loans include personal loans and education loans up to a certain limited amount. 

Summary:

Unsecured loans are good when:

• it would be best if you had cash immediately
• you have no collateral or security
• you need a small loan for a short period

Their processing is very simple, easy to process, and quick to disburse as their documentation is very convenient, and they can be availed through an easy loan app.

Secured loans are good when:

• your credit history is nill or bad
• you have to borrow a large amount
• you have collateral to pledge

Their processing may be time-consuming, but they charge lesser interest rates and provide loans for longer periods. 

Final Take

Having gone through all the features, pluses, and minuses of both secured and unsecured loans, We can conclude that in case of a financial emergency, an unsecured loan is a better option as it gets processed very easily, right from the comforts of one's home, through an instant loan app, like Avail Finance. Even though such loans have a higher interest rate than secured loans, the borrower does not have to worry about any collateral and gets the amount within a day in their bank account, unlike secured loans.