What are Secured Loans

 Updated on - 11 July 2024 

While there are many different types of loans available, they are broadly classified into secured and unsecured loans. In this article, we will take a look at secured loans, their features, and benefits.

Features of Secured Loans

The salient features of secured loans are -

• It is disbursed only after the collateral is provided

• Lower Interest rates due to the presence of security

• Longer and more flexible repayment tenures

• Customizable according to the specific needs of the borrower

Benefits of Secured Loans

Secured loans have many benefits over unsecured loans. Some of them are mentioned here -

• Repaying secured loans is a great way of building your credit score

• Secured loans enable you to spread the cost over time

• Due to low risk, lenders usually grant large amounts as secured loans

• Secured loans can be used for any purpose such as loan consolidation, home improvement, etc.

Types of Secured Loans

There are various types of secured loans that you can avail of. Some of them are mentioned here -

• Vehicle Loans

Vehicle loans, also known as auto loans, are secured loans where the purchased vehicle acts as collateral. The lender transfers the ownership of the vehicle to your name once you have paid off the loan.

• Mortgage Loans

A mortgage loan can be taken against any property that you own. The lender runs a valuation of the property and offers you a loan accordingly. You can then use this loan amount for any purpose, and get your property released once you pay off the loan.

• Share or Savings-secured Loans

These secured loans use the funds in your savings account as collateral. Depending on their valuation, the loan amount is approved.

• Secured Credit Cards

These work just like regular credit cards but are given against a fixed deposit. Your credit limit is generally up to 75-80% of the deposit amount. 

• Secured Lines of Credit

In case of a line of credit, you have a set limit and you can borrow any amount within it. When you pay it back, the limit again goes up to the maximum amount. A secured line of credit works in the same way but is provided to you against an asset or collateral.

• Car Title or Pawnshop Loans

In such loans, you can use your car title or any other valuable, such as jewellery, tools, etc. as collateral. You need to be careful about such loans as the interest rates are generally high, and you may lose your asset if you fail to repay the loan.

• Life Insurance Loans

Just like other secured loans, in this case, you can keep your insurance policy as collateral. Depending on the cash value of your policy, your loan amount and terms are decided.

• Bad Credit Loans

These loans are for people who have a poor credit history. They work just like secured LOC, loans against savings, or secured credit cards. Just note that a poor credit score along with a secured loan may translate to high interest rates.

Top Banks Providing Secured Loans in India

Now that we know what secured loans are and their types, let’s learn where you can get secured loans. Here is a list of top banks that provide secured loans -

• State Bank of India

• HDFC Bank

• Axis Bank

• Punjab National Bank

• ICICI Bank

What are Loans Against Securities (LAS)?

Loans Against Securities are a type of secured loan that involves pledging your shares, mutual funds, and life insurance policies as collateral for your loan. Such loans are typically offered as an overdraft facility to your account after you have deposited your securities. 

You can use the LAS facility to draw money from your account, and you pay interest only on the LAS amount you use and for the period you use it. These loans are suitable for those who require instant liquidity for personal or business purposes and can repay them within a short time frame.

Conclusion