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What are Secured loans? What are the Types, Features, and Eligibility for Secured Loans?

Updated: Apr 22, 2022

Loans are gaining popularity in today’s world for many reasons. One of the main reasons is the affordability of loans. For eligible candidates, loans are available easily and at competitive rates. Loans can be secured or unsecured, and you can select one depending on your requirement.

A secured loan is a type of loan in which borrowers pledge any asset as collateral against that loan. The asset could be a car, gold, property, financial assets, etc.

What Are Secured Loans?

Let us understand the meaning of secured loans in-depth. Secured loans are those that need some type of collateral or security as a condition of borrowing. Secured loans allow borrowers to enjoy the opportunity of lower interest rates. This is because they present a lower risk to lenders. This means that in case the borrower defaults on the payment of the loan, the lender can claim the asset which has been pledged as collateral. The main difference between secured and unsecured loans is collateral only. Unsecured loans are collateral free loans, posing higher risk to the lenders. Secured loans and unsecured loans, both are popular today and can be chosen based on your preference and circumstances.

Types of Secured Loans:

The most popular types of secured loans are vehicle loans, mortgage loans, financial assets-secured Loans, and credit cards. The loan amount that is made available to the borrowers is usually based on the value of the collateral provided in these types of loans. For instance, the collateral in a property loan is high since the property value is fairly large in comparison to other assets. Business loans can also be secured. An example of a secured business loan would be a commercial property loan. These loans allow business owners to borrow a large sum to purchase commercial property which is used as the collateral.

Main Features of Secured Loans:

1) Lower Interest Rates
If the borrower defaults payment of a secured loan, then the lender can repossess and liquidate the asset that is held as collateral and recover the loan amount from that asset. This makes secured loans risk-free for the lender. In return, lenders offer secured loans at lower interest rates, usually at floating rates of interest. For instance, at Grihashakti, we offer loans against residential or commercial property at attractive interest rates to eligible borrowers.

2) Variety in collaterals
Collaterals for secured loans are maintained by their respective assets. If you are getting a home loan, for example, then the loan is secured by the property you are buying. The same would be applicable for a car loan. If you default on your home loan EMIs, the lender has the authority to seize the collateral that was used to secure the loan. The lender could initiate a foreclosure proceeding. The home could be auctioned off and the proceeds would be used to repay what was owed on the defaulted mortgage.

3) Longer Tenure
Since secured loans are usually taken for a larger amount, they come with longer tenures. For instance, home loans are provided by SMFG Grihashakti to eligible borrowers for tenures upto 30 years. Since the tenures are longer, the resulting EMI can easily fit within your monthly budget.

4) Foreclosure
In the case of secured loans like loan against property or home loans taken, borrowers have the option of making part-prepayments or increasing their EMIs during the tenure of the loan in case they get any additional income or their monthly income increases. If the loan was taken at a floating interest rate for non-business purposes, no foreclosure charges are applicable. Thus borrowers can use any extra income as and when they get it to pay off their debt much faster than the originally agreed upon tenure.

Eligibility of Secured Loans

  • To be eligible for secured loans, you need to submit documentation related to your asset.
  • Over and above this, you also need to submit your identity proof, address proof, income proof, and bank statements.
  • You must have a credit score of 700 or more.
  • You must have a work experience of at least 1-3 years depending on the nature of your employment, and a minimum monthly income depending on your  location.
  • At Grihashakti, salaried borrowers must earn at least INR 1,20,00 per annum.
  • You must be at least 21 years old at the time of loan application and not older than 65 by the time of loan maturity.
Disclaimer: *Please note that this article is for your knowledge only. Loans are disbursed at the sole discretion of SMFG Grihashakti. Final approval, loan terms, disbursal process, foreclosure charges and foreclosure process will be subject to SMFG Grihashakti’s policy at the time of loan application. If you wish to know more about our products and services, please contact us.

SMFG India Home Finance Co. Ltd. (Formerly Fullerton India Home Finance Co. Ltd.)
CIN number: U65922TN2010PLC076972

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