What is Secured Lending in India?
Author
Quicklend Team
Published
25 February 2025
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As the name goes, secured lending refers to loans given against collateral or securities. Secured lending refers to loans backed by collateral, meaning the borrower pledges an asset such as property, gold, or a vehicle to obtain the loan. This reduces the lender's risk, resulting in lower interest rates and higher loan amounts compared to unsecured loans. If the borrower defaults, the lender has the right to seize the collateral to recover the outstanding amount.
Types of Secured Loans in India
There are several secured lending options available in India, catering to different financial needs. Some of the most common types include:- Home Loans
- Purpose: To purchase, construct, or renovate a house.
- Collateral: The property being purchased.
- Loan Tenure: Up to 30 years.
- You will get upto 85% of the value of the property as a loan.
- You do not get these loans for purchase of land. In the event of you purchasing one, an expectation is set to build a house within a specific time period.
- Interest rates vary depending on banks/NBFC and are linked to repo rates in most cases.
- Loan Against Property (LAP)
- Purpose: To finance personal or business needs.
- Collateral: Residential or commercial property.
- Loan Tenure: Typically 10-15 years.
- Gold Loans
- Purpose: Short-term financial needs like education, medical expenses, or business expansion.
- Collateral: Gold jewelry or ornaments.
- Loan Tenure: Up to 3 years.
- This is a highly physical process where the lender tends to measure the quality of the asset being pledged.
- Interest rates are quite high when compared to other assets.
- Vehicle Loans
- Purpose: To purchase a car, bike, or commercial vehicle.
- Collateral: The vehicle itself.
- Loan Tenure: Up to 7 years.
- You don't get a loan against a user car or bike at the same rate as a new one.
- Loan tenures significantly vary for used car scenarios.
- Loan Against Securities (LAS)
- Purpose: To meet liquidity needs while retaining investments.
- Collateral: Shares, mutual funds, or insurance policies.
- Loan Tenure: Depends on the security pledged.
- Websites like Quicklend provide digital LAMF options at the most affordable rates.
- Options for LAS are also provided by lenders such as Bajaj, Piramal, etc.
- Business Loans Against Collateral
- Purpose: To expand or manage business operations.
- Collateral: Business assets, machinery, or property.
- Loan Tenure: Varies based on lender policies.
- Rates vary depending on the collateral being pledged but typically tend to be expensive when compared to LAS.
- Sole proprietorship or partnership firms where the directors hold individual MFs are better suited for Loan Against Mutual Funds to deploy into their businesses.
Typical Interest Rates for Secured Loans in India
Interest rates for secured loans vary based on the lender, borrower's credit profile, and the type of collateral. Below is an approximate range for different secured loans:- Home Loans: 8% - 10% p.a.
- Loan Against Property: 9% - 14% p.a.
- Gold Loans: 9.5% - 25% p.a.
- Vehicle Loans: 7% - 12% p.a.
- Loan Against Securities: 8% - 12% p.a.
- Loan Against Mutual Funds: 10% - 12% p.a.
- Business Loans (Secured): 10% - 16% p.a.
Why Choose Secured Loans Over Personal Loans?
While personal loans are widely used for immediate financial needs, secured loans have several advantages:- Lower Interest Rates: Personal loans have higher interest rates (10% - 24%) as they are unsecured, while secured loans offer lower rates due to collateral security.
- Higher Loan Amounts: Secured loans allow borrowers to avail higher amounts compared to personal loans.
- Flexible Repayment Tenure: These loans come with longer repayment tenures, reducing the EMI burden.
- Easier Approval Process: Lenders are more willing to approve secured loans since the risk is lower.
- Better Credit Score Impact: Timely repayment of a secured loan can improve credit scores significantly.
Conclusion
Secured loans in India provide a cost-effective financing option with lower interest rates and higher borrowing limits compared to personal loans. Choosing the right secured loan based on your financial needs and available collateral is crucial for a sound financial strategy.
Author Quicklend Team
Published 25 February 2025
