Secured Loans vs. Unsecured Loans: Which Is a Better Option?

Nov 5, 2021

Secured Loans vs. Unsecured Loans: Which Is a Better Option?

The two primary types of funding available from most financial institutions these days are secured loans and unsecured loans. While looking for financial aid to bridge the gap in cash flow, several individuals find themselves pondering over which loan type to choose. However, each of these has its own set of pros and cons and is curated to suit different borrower profiles.

Therefore, individuals must have a detailed knowledge of each of their features to understand the differences and make an informed choice.

What Are Unsecured Loans?

Also called collateral-free loans, unsecured loans constitute the form of credit that individuals can avail of without pledging any asset. Instead, lenders base a borrower’s creditworthiness entirely on his/her eligibility. In the absence of collaterals, financial institutions examine applicants’ credit profiles with extra caution to mitigate risk. This is why individuals often fail to get their loan applications approved. The two most prominent types of such funding are personal loans and business loans.

What Are Secured Loans?

As the name suggests, individuals need to pledge or mortgage some kind of collateral in order to avail a secured loan. Due to the security offered by the pledged assets, lenders are lenient with the eligibility requirements. At the same time, borrowers can avail a high loan amount, depending on the value of collateralized items.

This makes secured funding a preferable option for individuals who are unable to comply with the strict requirements of collateral-free loans.

What Are the Major Differences between Secured and Unsecured Loans?

Here is a detailed overview of the individual features of a secured loan and unsecured loan to help you establish their primary differences.

Features of unsecured loans

  • Collateral requirement:

As already mentioned, unsecured loans are available without any collateral. In other words, individuals need not pledge any asset to avail such funding.

  • Loan amount:

It depends on a borrower’s eligibility. For example, an individual with a high CIBIL score will be eligible for a higher loan amount than an applicant who has a lower credit score. However, note that other factors, such as income and repayment history, are taken into account as well.

  • Rate of interest:

Lending institutions charge high interest on unsecured loans to compensate for the lack of security. The interest rates can range approximately from 10% to 31%, depending on the lending institution. This interest amount, along with additional fees and charges, adds significantly to the borrowing cost, making unsecured loans an expensive financing mode.

  • Eligibility parameters:

As already discussed, unsecured loan providers are extremely stringent with eligibility parameters. Only individuals meeting the following criteria can get a collateral-free loan:

  • Must be a salaried or self-employed individual.
  • Must be aged 21-60 years if salaried, and 25-65 years, if self-employed.
  • Should have a 750+ credit score.
  • Must meet the minimum income requirement specified by lenders.
  • Should have a specific work experience or business vintage, according to the lender’s criteria.
  • Documents required:

Besides meeting strict eligibility requirements, applicants also need to provide a long list of documents, including:

  • ID proof
  • Address proof
  • Income proof
  • Employment or business ownership proof
  • Financial documents, including bank statements and ITR copies
  • Loan processing time:

The processing time for unsecured loans usually ranges from 24 hours to 7 days depending upon the financial institution.

Documents required:

Besides meeting strict eligibility requirements, applicants also need to provide a long list of documents, including:

  • ID and address proof
  • Documents related to the specific collateral.
  • Loan processing time:

Several forms of secured funding like property loans demand elaborate documentation related to property ownership. This can stretch the processing time significantly, taking longer than unsecured loans to process. However, gold-backed funds can save you this hassle as there is little to no documented requirement for ownership of gold ornaments.

Now that you have a detailed idea of the individual features of secured and unsecured loans, here is a quick overview of the major points of difference between these financial products.

Is it Better to Have an Unsecured or Secured Loan?


Unsecured loan

Secured loan


Not required


Interest rate


Comparatively low




CIBIL score

Must be 750+

Not mandatory




Processing time



Detailed knowledge about the differences between a secured loan and an unsecured loan can help individuals make an informed decision between the two.

Individuals lacking adequate assets may resort to an unsecured borrowing mode to address financial shortcomings. However, they must make sure they are eligible for the concerned financial product.

Those lacking a decent credit profile or the required level of income can opt for secured loans. Most secured financing options are available to more or less anybody owning the required collaterals legally. Popular types of secured loans include property loans and gold loans. Among these, the latter can be a more feasible option for most individuals, given its various features.

Why Are Gold Loans the Best Form of Secured Credit?

Just like unsecured loans, some types of secured funding come with their fair share of challenges. Financial products like home loans and car loans are designed to cater to only selected requirements. Similarly, a loan against property, although offering flexible usability, involves somewhat elaborate paperwork, requiring applicants to submit all property-related documents.

On the other hand, a gold loan offers end-usage flexibility against minimal documentation. Besides, online gold loan providers like Rupeek provide a plethora of additional benefits with this financial product.

Some of them are as follows:

  • Instant disbursal

Interested individuals can easily place a loan request via the Rupeek app or website. Following that, a loan representative will visit you at your provided address to carry out the verification and loan appraisal process. Upon approval, applicants will get the loan amount transferred to their accounts within 30 minutes under the loan manager’s approval.

  • Highest safety of collaterals

With our ISO 9011:2015 certified security procedures, borrowers need not worry about the safety of their pledged collaterals. Post loan approval, the loan manager will seal the gold items in a GPS-secured bag and deposit them to the nearest partner bank. There, the jewelry items will be stored in high-security vaults under military-grade surveillance. Additionally, Rupeek fully insures your gold ornaments against any sort of damage or theft.

  • Substantial loan value

Individuals can avail up to Rs.1.5 crore with our highest LTV ratio of 80%. However, note that the approved amount will depend on the current gold rate as well as the purity of pledged items. You can estimate the loan amount available against your gold ornaments using our online loan calculator. At the same time, you can get an idea of the total interest payable against your borrowed funds and plan your finances accordingly.

  • Easy repayment

Borrowers can choose from flexible repayment options, depending on their financial standing. Individuals with regular cash flow can opt for the traditional EMI payments. Alternatively, those lacking a steady source of income can choose to pay any amount at any time within the tenure. This also includes a one-time bullet payment.

  • Lowest interest rate

Rupeek offers the most affordable gold loans, with interest rates starting at 0.49% per month. Applicants can choose from a variety of schemes as per their suitability. Additionally, borrowers can make part payments and also close a loan before the completion of their tenure without incurring any extra charges.

  • Gold credit line

Besides the above beneficial features, existing Rupeek customers can also avail an overdraft facility against their gold, known as Rupeek Quick. The added advantage of this feature is that you only need to pay interest on the utilized amount. Also, individuals need not submit any additional documents.

If you find the above features advantageous, then a Rupeek gold loan might be the best option when looking for a secured loan. Nevertheless, individuals lacking adequate collateral can opt for an unsecured loan to meet their financial shortcomings.

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