Secured Loan

Definition

A secured loan requires the borrower to pledge an asset as security. Common examples include home loans, LAP, and LAS. Because the lender has recourse to collateral, secured loans offer lower interest rates, higher amounts, and longer tenures compared to unsecured loans.

In India, secured loans are governed by SARFAESI Act, 2002, which allows banks and financial institutions to recover non-performing assets without court intervention. While terms are better, the risk of losing the pledged asset on default is real.

Frequently Asked Questions

What is the main advantage of a secured loan? ▾

Lower interest rates and higher loan amounts compared to unsecured loans, because collateral reduces lender risk. Also typically longer repayment tenures.

What are examples of secured loans? ▾

Home loans, loan against property (LAP), loan against securities (LAS), gold loans, and vehicle loans.

Can a lender seize collateral without court approval? ▾

Under SARFAESI Act 2002, banks and authorized institutions can seize and sell collateral for NPAs without court intervention, after due process including a 60-day notice.

Why It Matters

Secured loans offer the most favorable terms but carry the risk of asset loss on default. Borrowers must be confident in their repayment ability.

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