Secured loan means safe loan. A lot is clear from the name itself. In a secured loan, the bank gives loan by mortgaging a property. In a secured loan, the customer always has to give some guarantee or asset to the bank. For example, if you have taken a home loan to buy a house, then the bank will have the right over the papers of the house until you repay the entire home loan.
In secured, both physical and financial assets can be used for collateral or security. Physical assets include assets like gold, house, car. Whereas, financial assets include equity shares, FD, mutual funds, life insurance policies.
What is a secured loan?
There is less risk in giving a loan to the bank. In a secured loan, the customer always has to give some guarantee or asset to the bank. Under a secured loan, applicants get a loan at a low interest rate and easy repayment period. Because the applicant has deposited his property with the bank as security, the bank will have the right over the papers until you repay the entire loan.
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Secured Loan Example.
According to Kalapaisa, suppose you want to buy land or a car on your loan, in this condition the financing company or bank keeps the original papers of your car or land. It will give you the soft copy so that your work can continue. When you pay all the money to the finance company or the bank, then it will give you the original papers.
Second method
The second way is that you give something yourself. Like gold, insurance, car papers, house papers, shop papers, factory or other business papers, fixed deposit papers, share (stock) rights, bond papers, mutual fund value, deposit cash, anything whose value is more or equal to the item you are buying.
How many types of secured loans are there?
According to Kalapaisa, there are 6 types of secured loans. These are mortgage loans, vehicle loans, financial instrument loans, title loans, non-recourse loans and pan-broker loans.
Mortgage (Housing) Loan
Home Loan- These are loans against property – either already owned by the borrower or for the purchase of a new property. In these types of loans, the property in question is used as collateral.
Vehicle Loan
(Vehicle loan)- The loan taken to purchase a new or second-hand vehicle is called a vehicle loan
Financial Instruments Loans
(Financial Instrument Loan) – A loan taken by providing a financial instrument such as fixed deposits or insurance policies as collateral is called a financial instrument loan.
Title Loan
(Title Loan) – Under this type of loan, the title under a property is temporarily transferred to the lender for the duration of the loan. When the loan is fully repaid, the property – home, land or vehicle – is returned to the borrower.
Non-Recourse Loans
(Non-recourse loan) – Under this type of loan, the asset offered as collateral is the only recourse available to the lender against the borrower.
Pawn-broker loan
(Pawn-Broker Loan) – This type of loan is given for a short period of 6 months to a few years against assets lent by individuals such as jewelry. These are informal loans that are usually taken with little or no documentation
Who can take a secured loan?
This loan can be availed by salaried as well as non-salaried people and proprietorship and corporate businesses. The minimum age should be 18 years. The applicant should be a resident of India. The value of the property deposited as collateral should be equal to or more than the loan amount.
In case of business loans, the business in question must have been in operation for at least 3 years. All loan applicants can apply for a secured loan, but there are certain conditions that must be met for each type of loan.
Documents required for a secured loan.
According to Kalapaisa, the documents required depend on what you are buying. Here I have mentioned the documents as per buying a house.
- ID Proof (copy of any one document): Driving License/Aadhaar Card/Passport
- Age Proof (copy of any one document): Passport/Driving License/Aadhaar Card
- Residence Proof (copy of any one document): Utility Bill/Passport/Lease Agreement
- Income Proof: IT Return/Form 16 along with salary slip of last 3 months
- Bank Statement: Bank Statement of last 6 months
- Property Documents: All original property documents must be submitted to the bank
- Passport size photo
- Signature Proof
- Filled application form
Secured Loan Interest Rate
The interest rates of secured loans are very low. This is because whenever you default in paying EMI, the banks face less risk. And the bank knows that if you do not pay, they will recover the loan by selling the mortgaged item. This improves your CIBIL score a lot.
Where to get a secured loan
NBFC
Try to avoid taking a secured loan from NBFC companies. Even if you are getting a higher loan amount than the bank amount, you will incur a loss in the long run. You may be seeing a discount now but in the long run NBFCs charge a lot. If we look at the security, then the money they give you will be taken from the bank later and whatever you have pledged will also be deposited in the bank.
Bank
You should try to take it from the bank. For security reasons, you can take it directly from your bank or offline by visiting the bank branch. Yes, you can collect information online and compare it with other banks. Try to have an account in that bank and the bank manager or any other employee is permanent there. The big advantage of this will be that if for any reason you default and the bank sells your mortgaged item, you can buy it. You will get information, there are some websites where banks sell such assets to recover the money.
When should one take a secured loan?
If you have a poor credit score then a secured loan can be a good option. Since the collateral you provide reduces the loan risk, you get a loan without paying high-interest rates. And this improves your CIBIL score. If the loan is being used to purchase something of value then it becomes important in the eyes of the bank and a good sign gets added to your CIBIL history.
Banks sell default items here
- Bankeauction.com
- BankAuctions.in
- eauctionsindia.com
- ibapi.in
After you default the bank will settle the matter with you, the recovery people will come to your home and try to solve the problem so that your settlement is done. The bank never wants to sell your mortgaged item but due to RBI rules it has to do so, otherwise the bank will have to declare NPA to RBI. That is why the bank sells your mortgaged item in auction. Sometimes the bank sells expensive cars, property, houses etc. at very cheap rates, you can check it from here, you can also buy it.