What are secured and unsecured loans?
Answer
Answer
Answer
A bank or an NBFC (non-banking finance company) can lend to anyone- be it an individual or a business entity- in two ways viz a secured or an unsecured loan. So, let’s try and understand the difference between the two.
Secured Loans
When you go to a lender and show some form of property, or asset, or other moveable assets like vehicle or gold, to get a loan, you are opting for a secured loan. The asset you present the lender is kept as collateral. This means that if you are unable to service or repay your loan, the lending company can take ownership of your collateral to recover the losses made.
Unsecured Loans
Unsecured business loans, as the name suggests, are not secured or protected by any collateral. This means that if you default on your loan repayments, then the lender does not have the right to automatically seize the collateral.