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22 Aug
  • Editorial Team
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A loan is a financial product which is used to fund a new purchase, revamp/ upgrade existing assets, ensure smooth functioning of business, etc. Very broadly, they can be divided into two type: Secured and Unsecured Loans.

A secured loan is a loan wherein the borrower pledges an asset owned by her/him for availing the loan. Conversely, an unsecured loan is issued without any asset or collateral guarantee. Since there is an element of risk involved in these loans, the applicable interest rates tend to be higher. 

The major differences between these two loan types are listed in the table below: 

In additon to the differences above, we have listed a few common types of Secured and Unsecured Loans:

Secured Loans:

  1. Car Loan (New or Pre-Owned): This kind of loan is usually taken to buy a new or used car.

  2. Loan Against Property: Such loans are taken against a real estate/ property based asset/ collateral. These loans involve larger ticket sizes for a duration of up to 15 years.

  3. Secured Business Loan: Secured business loans are typically given against a real estate/ machinery asset, bills receivable, rent receipts, etc.

Unsecured Loans:

  1. Credit Cards: A credit card is very commonly used example of an unsecured loan. In principle, you borrow money from a credit company to buy something today and repay the company at a later date.

  2. Payday Loans: Payday loans have recently become very popular, using these loans borrowers take money to cover their expenses until they receive their next salary.

  3. Credit Line: A credit line or line of credit is similar to an overdraft on a fixed account. Usually a line of credit is offered to borrowers who have a proven credit record at a financial institution.

  4. Student loans: Student loans do not require any past history by the borrower and are therefore are classified as unsecured loans.

  5. Small business loans: Small businesses do not have too many assets to pledge as collateral, therefore, they tend to opt for small sized unsecured loans.

Secured and Unsecured Loans offer various features and cater to almost any financial need or requirement. So choose wisely and make a decision which best suits your risk profile and required loan amount.

If you want to know more about funding options for your business, then visit Hero FinCorp SME & Commercial Loans.

Did You Know

Disbursement

The act of paying out money for any kind of transaction is known as disbursement. From a lending perspective this usual implies the transfer of the loan amount to the borrower. It may cover paying to operate a business, dividend payments, cash outflow etc. So if disbursements are more than revenues, then cash flow of an entity is negative, and may indicate possible insolvency.

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