IndiaLends Advisory

By IndiaLends Advisory

Jul 30, 2018

Is Personal Loan With Security A Good Idea?

One of the reasons for a personal loan being a popular form of credit is due to the loan being collateral free. However, do you think personal loan with security is a good idea to lower interest rates?

Well, it depends. Whether a personal loan with/without security is ideal or not depends on various factors, including your household financial budget and your financial situation.

Let’s discuss the benefits of a personal loan with/without security before taking the final decision.

Related Article: Personal Loan: Application Checklist

Benefits of a personal loan with security

Generally, any loan with security tends to lower the interest rates. So is the case with personal loans too. This is because the risk of default reduces for the lender when a borrower attaches a security. Secured personal loans or personal loan with security is also a good option for people with bad credit score. A collateral attached to a personal loan brings down the possibility of the individual defaulting the loan again.

The negative part of a personal loan with security is that in a case of default, you will lose your security. Be it your savings in the form of fixed deposits, tangible property such as property, land, or others, you can lose it if you are unable to repay the loan.

Benefits of a personal loan without security

The benefit of a personal loan without security is that you won’t need to put any of your assets at risk. In a case of a default, the lender will take legal action to recover your money. However, this will not affect your personal property.
Moreover, personal loan without security is beneficial for people who have financial goals; but don’t have the appropriate assets to fulfill them. For example, if a person wishes to start a business but does not have a collateral to pledge, it would be difficult for him to start his business.

Personal loan without security has higher interest rates than loans with security. This is because of the risk of default that comes when there is no security. The interest component is more to cover the cost of the loan borne by the lender.

Related Article: Questions To Ask Before Taking A Personal Loan

Moreover, it is important to know that unsecured personal loans being riskier require a good credit score. Not to forget, a clean history which is unlike in the case of loans with security. Therefore, the decision to take a personal loan with or without security relies on your financial situation.