secured loan meaning

A Detailed Guide to Secured Loans For Every Borrower

February 11, 2023 • 3017 views

Big expenses can come knocking at your door anytime. A secured loan, in this case, is a viable solution. You can borrow a high loan amount at a comparatively lower interest rate, by pledging collateral. This blog helps you understand the meaning of a secured loan, its types, the differences between secured and unsecured loans, how to apply for a secured loan and more. Read on!

What is a Secured Loan?

Secured loans are collateralized financial instruments used to get funds for bigger expenses. In most cases, the pledged collateral is mostly home or land. However, some lenders also accept other types of investments as security, such as bonds and valuable collectables. Examples of secured loans include home loans, car loans, mortgage loans, secured personal loans, and secured credit card loans.  

Types of Secured Loans

Here are the different types of secured loans:

Home Loans

Borrowers commonly take these secured loans for purchasing or constructing a home, with the house itself acting as security for the lender. Loan tenure can range from 120 months to 300 months, and interest rates typically start around 7% to 7.5% p.a.

Gold Loans

These loans are secured by pledging gold owned by the borrower. Gold acts as collateral and the interest rates start from 7.50% p.a. Lenders often require borrowers to pay only monthly interest until the principal is repaid.

Vehicle Loans

Borrowers take these loans for purchasing vehicles, with the vehicle serving as the primary security. Interest rates start around 7 to 7.5% p.a., and the Loan-to-Value (LTV) ratio depends on the type of vehicle.

Loan Against Property

A Loan Against Property allows borrowers to use their residential or commercial property as collateral. With Poonawalla Fincorp, you can get a loan up to Rs. 5 Crore at an interest rate starting from 9% p.a.

Loan Against Fixed Deposits

Borrowers can get loans against fixed deposits, with the FD acting as primary security. Loans can be up to 60% to 75% of the FD value, and interest rates may be slightly higher than the FD rate.

Working Capital Loans

These loans help businesses meet their working capital needs, with the stock and debtors acting as security. Interest rates on working capital loans can start from 12% p.a.

Also Read: Secured Loan vs Unsecured loans | What's the Difference?

Difference Between Secured and Unsecured Loans

The following table highlights the difference between secured loans and unsecured loans:


Secured Loan

Unsecured Loan




Interest Rate



Eligibility Criteria

Less stringent



The lender will seize the collateral

Missed payments will be sent to collections


How to Get a Secured Loan?

You can get a secured loan from a traditional bank, a Non-Banking Financial Company (NBFC), or any other lending institution. The most common types of secured loans are home loans, auto loans, mortgages, secure credit card loans, and secured personal loans.

Before you apply for the loan, make sure you keep some factors in mind, such as:

  • Check Your Credit Score

Your credit score plays an important role in determining your eligibility for a secured loan. A healthy credit score improves your chances of getting a loan approval faster. If you have a poor credit score, lenders might not trust you enough with the funds even after securing it with collateral. Keep a track of your credit score and ensure that it is above 750.

  • Assess the Collateral Value

Before applying for the loan, evaluate the collateral value you plan to put up. It will help you determine the amount of funds you can avail of against your collateral.

  • Calculate Your Budget

Calculate your monthly instalment so that you don’t miss paying your EMIs. Defaulting in loan payment could lead the lender to seize your property or any other asset you pledged as collateral. Use an online EMI calculator to determine your monthly payments and choose a loan amount and tenure accordingly.

Do Secured Loans Have Lower Interest Rates?

In most cases, secured loans have lower interest rates compared to unsecured loans. Because if a borrower defaults on the secured loan, the lender can foreclose the loan by seizing the pledged collateral to recover the loan amount. Secured loans are less risky for lenders as they can retrieve their funds.  

However, it is crucial to note exceptions like pawn loans, bad credit loans, and title loans, which may carry higher interest rates. Always carefully review the terms before agreeing.

What Happens If You Fail to Repay a Secured Loan?

If you miss an EMI payment or default on your secured loan, the lender has the right to seize the collateral. The lender can sell the item to recover the loan amount, whether it is your car, home, or personal belongings.

How Does Defaulting on Loan EMI Payment Impact the Credit Score?

Defaulting on a loan significantly lowers your credit score, reducing the likelihood of future loan approval. It is best to set up autopay to miss EMI payments. You can also use an EMI calculator to plan your EMI before getting a loan. However, if you have defaulted and have taken a hit on your credit score, you must take the necessary steps to improve your credit score. 

Also Read: Know the Different Types Of Loans Available In India

To Conclude

A secured loan allows access to substantial funds by pledging collateral, such as property or valuable assets. These loans come with comparatively lower interest rates. Make sure you choose a reputed and trustworthy lender like Poonawalla Fincorp to meet any financial need during emergencies.

Frequently Asked Questions

  • How do banks determine if a loan should be approved?

Banks assess your creditworthiness by reviewing your credit score. Additionally, banks may ask for details about your income, work history, debt-to-income ratio, and/or the value of collateral.

  • Is it possible to obtain a secured loan with a low credit rating?

Securing a loan with a low credit rating depends on the lender, loan terms, and various factors. The presence of collateral, such as your asset, increases the likelihood of loan approval despite a low credit rating.

  • What are the different types of collateral you can use to get a secured loan?

Here is a list of different types of collateral you can use to get a secured loan:

  1. Real estates
  2. Liquid assets (please note that retirement accounts are generally ineligible).
  3. Vehicles, such as cars.
  4. Tools and machinery.
  5. Various investments.
  6. Insurance policies.
  7. Collections and valuable items


We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Loan disbursal is at the sole discretion of Poonawalla Fincorp.
*Terms and Conditions apply

poonawalla fincorp team

Poonawalla Fincorp Team

Our team of expert writers and editors are passionate about providing authentic and valuable information on finance. Our aim is to simplify financial and finance-related concepts. We strive to help our readers become more aware and empowered to make informed financial decisions.

Trending Topics

Contact Us logo Quick Apply CIBIL Score logo Free CIBIL Whatsapp logo Connect on WhatsApp