How do secured personal loans work?

A secured personal loan is a type of loan where you offer something valuable like your property papers, gold, or even a fixed deposit as security to the lender. This asset is called collateral. If you cease to repay your loan as agreed then the lender can take over this asset to recover their money. Because the lender’s risk is lower with this arrangement, you’ll usually find that secured personal loans come with lower interest rate as compared to unsecured ones. You may also get a longer time to repay, which can make the monthly instalments easier to manage.

The process to get a secured personal loan takes a bit more time than an unsecured loan. This is because the lender needs to check the value of your asset, make sure all the paperwork is in order, and confirm that you really own what you’re offering as collateral. You’ll have to provide documents related to the asset, and sometimes the lender will send someone to physically verify it.

Secured loans are a good option if you need a bigger loan amount or if your credit score isn’t strong enough for an unsecured loan. By pledging an asset, you can often borrow more and get better terms.

Here’s what to keep in mind:

• You must provide collateral.
• Interest rates are usually lower.
• Repayment periods are often longer.
• Approval takes longer due to asset checks.
• Works well for bigger loans or if your credit score is low.

In India, secured personal loans are a practical choice for those who want affordable credit and have assets to pledge.