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Secured or Unsecured loan: Which one to choose?

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Definition

 

Finances are an important aspect of setting up and running a business. More often than not, financial requirements have to be met from outside sources, say in the form of loans. Several financial institutions offer business loan for self employed people.

 

Business loan for self employed may be broadly categorized into two types, namely secured and unsecured. A secured loan is given against some kind of security which is called the collateral. You can use any of your assets such as house, land, gold etc. and avail a loan amount corresponding to the value of the asset. On dispensing a secured business loan in Bangalore, the financial institution holds on to the ownership deed of the asset until the loan is paid off. Loan against property and car loan are some of the examples of secured loans.   

 

On the other hand, an unsecured loan is one that is not secured by a collateral or security. An unsecured business loan is obviously riskier to the lender as compared to a secured business loan in Bangalore. Consequently it comes at a higher rate of interest and is released only after a thorough evaluation and assessment of your financial status and credit repayment history. Credit cards and personal loans are examples of unsecured loans.

 

Secured vs. unsecured loan: A comparison

 

  • Collateral: A secured business loan in Bangalore requires you to provide the lender with collateral for security whereas you can get an unsecured loan without one.
  • Rate of interest: Owing to the risk factor associated with unsecured loans, they come at a higher rate of interest as compared to secured loans.
  • Ease of securing: The lower risk associated with a secured loan makes it easier to obtain than an unsecured one.
  • Repayment period: A secured business loan in Bangalore has a longer repayment period when compared to an unsecured loan.

Which one is better?

 

A secured business loan in Bangalore is easier to obtain, has a lower rate of interest, longer repayment period and also has a higher borrowing limit which work in the favor of the borrower. They are also safer to the lender for the simple reason that even if the borrower is unable to repay the loan for some reason, the collateral can be used to recover the amount. On the other hand, the provision of an asset as collateral also keeps inspiring the borrower to quickly pay off the loan amount.   

 

We can, therefore conclude that a secured business loan in Bangalore is the right choice considering all the factors and aspects of both types of loans.

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