Understanding the Difference Between Secured vs Unsecured Personal Loans

Have you ever wondered why your friend got a lower interest rate than you on the same loan amount?

It’s not always your salary or your CIBIL score. Sometimes, it’s about what you put on the table. You might pay much more than you should if you don’t know the key difference between secured and unsecured personal loans.

Let’s go deeper. In India, personal loans are booming. As of March 2023, unsecured loans in India stood at a massive ₹13,32,000 crore. That’s not pocket change. It’s growing because people want easy money, and banks want fast profits. But with fast loans come faster traps.

Why Knowing the Type of Loan Matters

Loans are not just about “how much” you get. They’re about how much you pay back. That changes everything.

Whether you're looking to renovate your house, fund a wedding, or handle an emergency, your loan type can make things smooth or bring in months of tension.

Read More – Gold Loan vs. Personal Loan in 2025 

You must decide whether to risk your gold, land, or fixed deposit, or go completely risk-free but at a higher cost.

Secured Personal Loans – Safety for Lender, Advantage for You

Secured personal loans mean giving something, like your gold, house papers, or FD, as security. In simple words, if you don’t pay, the bank can take it.

But because the bank feels safe, you enjoy lower rates.

Why People Choose Secured Loans

• Lower interest rates (as low as 8.5% sometimes)
   
• A bigger loan amount is possible.
   
• Long repayment tenure
   
• High chances of approval even with average credit

But Also, the Risks

• If you miss EMIs, your asset is gone
   
• Paperwork takes longer
   
• You must own something valuable.

Real Example:

You pledge your gold worth ₹2,00,000 and get a loan of ₹1,50,000 at 9% for 3 years.

If you default, the bank auctions your gold. Simple as that.

Unsecured Personal Loans: Quick, Clean, But Costly

No property? No gold? No worries. Unsecured loans don’t require collateral. They just check your credit score, salary, and job profile. If you tick the boxes, they’ll disburse the loan fast, sometimes in 24 hours.

Why Indians Love It

• Quick processing
• No documents for assets
• Ideal for salaried individuals
• Great for small amounts (₹50,000 to ₹5,00,000)

But Be Careful

• High interest rates (usually 12% to 24%)
• Lower amount limits
• You need excellent credit
• Miss one EMI – your credit score tanks

Example:

You take a ₹2,00,000 loan at 15% for 3 years.

Now compare this with secured loan EMI – almost ₹1,000 more every month.

How to Choose What Suits You Best?

Choosing between a secured and unsecured loan isn't just about interest rate. It's about how much risk you can take and how quickly you need the money. 

Your income, job type, and assets also matter. There are no fixed rules. But there are signs to guide you better.

1. You Have Assets to Offer

If you own a house, gold, fixed deposit or land, go for a secured loan. This will lower your interest rate and EMI. Banks feel safer when they have something to recover if you default.

2. You Need a Big Loan

Need more than ₹10,00,000? A secured loan is better. Banks approve bigger amounts only when they hold collateral.

3. No Assets, But Stable Income

If you earn regularly and have no fixed assets, unsecured loans suit you. But keep your CIBIL above 750. That helps in getting quick approvals.

4. Urgent Cash Within 2-3 Days

Unsecured loans are faster. Sometimes within 24 hours. If it's a medical emergency or urgent need, go for it. No delay, no asset check.

5. You Can Afford Slightly Higher EMI

People who prefer ease over paperwork often go for unsecured loans. The EMI is high, but there's no risk to property or gold.

Quick Tips:

• Always use EMI calculators before applying.
• Read the part-payment and early closure charges.
• The loan EMI should not cross 40% of the monthly salary.

Conclusion

Taking a personal loan is not only about money. It’s about how ready you are to handle that money. Think of your salary, your monthly expenses, and how stable your job is. Some people take loans without planning, and they later suffer. 

Also Read - How to Get a Business Loan Without Any Collateral in India

So, before signing anything, ask yourself if you really need this loan. Understand the interest rate, EMI, and hidden fees. 

Ask the bank all the questions. Read the full loan document. Get help from someone if needed. A smart loan today can help your future, but a bad one can create stress for years.

FAQs

1. Can I take both secured and unsecured personal loans at the same time?
Yes. Banks allow multiple loans if your income supports the total EMI. But you need a solid repayment record.

2. What is the minimum CIBIL score for a personal loan?
Generally, above 750 is safe. Some NBFCs give up to 650, but with higher interest.

3. Is a gold loan safer than a personal loan?
Safer in interest rate and repayment. But you risk losing gold if you miss a payment.

4. Can I transfer the unsecured loan to a secured loan later?
Yes, by taking a secured loan and pre-paying the unsecured one. Many do this to reduce EMI.

5. Which loan affects the CIBIL score more?
Unsecured loans affect it more. Because the bank has no assets to recover. Any delay hits harder.

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About the Author

LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?