Complete Guide on Secured Loans

Complete Guide on Secured Loans Overview:

Financial institutions like banks and NBFCs provide loans to MSMEs and SMEs to start or fulfill their business requirements. When these financial institutions offer loans on submission of an asset or security, it is called a Secured loan which is also one of the best sources to take a loan. A typical example of secured loans is home and vehicle loans, where the loan applicant needs to keep the vehicle or house to be purchased as security, which later becomes secured debt. In case the loan borrower fails to repay the loan by chance, the lender or the financial institution can take ownership of the asset/security.

There are many purposes for taking secured loans:

  • At the point when the borrower needs a lot of cash against promising resources and properties.
  • An augmentation of a prior credit frees the borrower from monetary risk and protects the moneylender against loan repayment.
  • As a proportion of obligation solidification with the end goal of further developing the FICO rating.
  • As a decision over unsecured loans due to better terms.

Secured Loans – Features

Although the features of secured loans differ from each other there are a few in common, which we have mentioned below:

Can be availed by all: Anyone who is salaried or non-salaried, proprietorships and corporate businesses can help with a secured loan.

Interest rate is low: In secured loans, the interest rate is standard as the banks face a lower risk for defaults.

Resource Required as Collateral: Secured loans are offered against property or resource that is kept as security, and the loan amount can range up to 85% of the property’s worth.

Tailor-made: Secured loans can be tailor-made per the client’s requirement. For example- the borrower can choose the type of interest and repayment options.

No need for a Guarantor: A secured loan doesn’t ask for any guarantor.

Fast Processing: The processing and approval are fast.

Helps to improve Credit Score: When the borrower timely repays the loan amount, it improves the credit score.

Probability of Asset Takeover: Banks and moneylenders can repossess the borrower’s resources if you neglect to reimburse your loan.

 Secured Loans interest rates and charges:

A secured loan’s interest rate may vary depending on the purpose of the loan, the amount borrowed, and the asset kept as security. But the good thing is that the interest rates are lower than unsecured loans.

For Mortgage Loans/home loan/ car loan

  • Documents that prove your identity like Voter Card, Aadhaar Card, PAN Card, etc.,
  • Valid document proving your age.
  • Valid documents proving your residency like a rent agreement, utility bills, etc
  • Documents that prove the income of the borrower for the last three months
  • Borrower’s authenticated Bank Statement for the last six months
  • Original property documents that have been put up as collateral
  • And, of course, the accordingly filled application form and a recent passport-size photo.

The following documents are also required for Business Loans and the documents mentioned above.

  • Information regarding the organization’s products and services.
  • Balance sheet along with profit and loss records of the organization for the recent three years.
  • The IT returns filed by the organization in the past three years of business loan.

 The process of applying for a secured loan:

When an applicant wants to apply for a secured loan, it is essential to know beforehand the processes. Although, it may differ from one financial institution to another. We have mentioned the general steps you need to take while applying for a secured loan:

  • You may visit the concerned financial institution’s official site or their nearest branch.
  • Fill up the application form, which you may download from their website along with your KYC documents.
  • Present the necessary income evidence.
  • Present all other documents that the financial institute asks.
  • If all the documents are in order, your loan will be dispensed within a brief time.

 Types of Secured Loans in India

There are various types of secured loans available in India. We have mentioned them below:

Mortgage (Housing) Loan: These are loans against property already owned by the borrower or for purchasing a new property. The property under question is used as collateral in these types of loans.

Vehicle Loan: Loans taken for the acquisition of a new or used vehicle are called vehicle loans.

Financial Instrument Loan: When financial instruments such as fixed deposit or insurance are provided as collateral to take a loan, then it is called a financial instrument loan.

Title Loan: Under this type of loan, the title under a property is temporarily shifted to the lender for the tenure of the loan. When the borrower fully repays the loan, the property – house, land, or vehicle is returned to the borrower.

Non-resource Loan: In this type of loan, property is offered as collateral/security, and is the only resource available to the lender against the borrower.

Pawn-broker loan: Individuals offer this type of loan against property such as jewelry for the short term like 6 months to a few years. These are unofficial loans usually taken with little or no documentation.

Read More: How to avail an instant business loan in Bangalore

 Benefits of Taking Secured Loans

When an applicant applies for a secured loan, they may want to know the benefits of it, which they may not avail of in other loans. Below are a few:

Better agreements from the bank: When applying for a secured loan, the borrower gets a better deal from the bank. It has more straightforward and less expensive handling and quicker documentation. There are also more amicable terms that won’t abandon you on the off chance something turns out badly.

Flexible reimbursement terms: With a secured loan, a borrower gets the advantage of a loan, making one major installment that incredibly decreases your capital, or on the other hand, closes your credit early. A few banks and moneylenders don’t permit you to complete your credit early, yet with a secured loan, this is conceivable.

Flexible reimbursement tenure: There are flexible tenures to repay your loan that can be adjustable to suit your capacity to reimburse. A borrower can return their loan quicker, with smoother EMIs for a more limited period, or decide to pay more modest sums over a more drawn-out period. It all depends on the borrower as long as the collateral is kept.

Low-Interest Rates: Since a secured loan is taken against security, financial institutions offer credits at low interest fees. This is because the sold property limits the risk, so the bank has confidence in the capacity of the borrower to reimburse the loan.

Higher Amount of Loans: With a secured loan, an applicant can take a significant amount as a loan, Large at the worth of the property that has been set up as a guarantee. It should be noted, however, that the loan amount can’t surpass the value of the sold property.

Speedier Processing and Approval: The borrower doesn’t need to go through tedious processing. It is pretty quick, and the approval process makes it convenient for the borrower.

An applicant with a Bad Credit Score can also avail of a secured loan: Applicants with a bad credit rating can likewise avail of this loan. When they repay the amount timely, it will ultimately improve their credit score.

Tax Deductible: When it is a home loan, the interest on the loan is deductible, saving a considerable amount of money for the borrower.

Low Minimum Income Standard: The base income bar for a secured loan is low. This is because the candidate has previously guaranteed the bank their reimbursement limit by forfeiting their property.

 Which type of things can a borrower keep as collateral/security to back a secured loan?

Any resource permitted by law can be utilized to avail secured loan, even though banks will look for a guarantee that is fluid and has a worth generally equivalent to the loan amount.

Usually, secured loan collateral comes in the accompanying structures:

  • Land, including any monetary value procured since buying the home
  • Financial balances, including financial records, bank accounts, testaments of store records, and currency market accounts
  • Vehicles, trucks, SUVs, or different vehicles
  • Stocks, shared assets, or bond ventures
  • Valuable metals, exquisite quality collectibles, and different assets

Read More: Axis Bank Business Loan: Features, Benefits, Interest Rates


Secured loans are the ones under which a borrower promises a resource or property as protection against reimbursement of the loan. The moneylender enjoys the benefit of the guarantee on the off chance that the borrower neglects to reimburse the advance in the specified time.

Secured loans are a method for getting finance amid critical needs. However, they should be utilized warily. The resource promised as security should be considered as the bank’s property in the borrower’s mind until the credit is reimbursed in full. Banks won’t hold back or think long and hard about holding onto a defaulter’s guarantee.


Can an applicant avail of a secured loan with a low credit rating?

Does a borrower need a guarantor for a secured loan to get approved?

What should be the worth of the resource presented as insurance?

How long does a borrower need to pay EMI on a secured loan?

For what reason would it be advisable for one to go for a secured loan?

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