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Rakhi Vasavada
Rakhi Vasavada, Financial and Legal Consultant
Category: Finance
Satisfied Customers: 4545
Experience:  Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
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Which one makes more sense, weighing the pros and cons - an

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Which one makes more sense, weighing the pros and cons - an unsecured loan at 8.75% or a secured loan at 4.5% with a paid-for car as collateral?

Dear Friend,


The answer is very straight. The Secured Loan with less interest is always beneficial. So, undoubtedly you must go with the second option, i.e. 4.5% Secured Loan with a paid-for-car as collateral.


Secured Loans has many benefits. A secured loan is one where amount is lent to the borrower with a pledge that he will repay the loan after a specified period. To give more teeth to the lender, the borrower will have to present certain collateral. The very first benefit of secured loans is the cheap rate of interest. After mortgage, secured loans charge the lowest rates of interest in the personal finance category. Another important advantage of secured loans is that borrowers can draw as much of cash as they want. Compare the situation with unsecured loans and you find loan providers cautious in approving loans of higher values. There is always the fear for the non payment of the lent amount. In the case of secured loans, the loan provider is free of any such fears. Thus, borrowers have to just name the figure and the loan is ready.


In your case, as mentioned in the first paragraph, you must go for the second option.


I am sure this would help...

Warm Regards,



Customer: replied 5 years ago.
But what about the risk of the car as collateral? In a catastrophic event such as job loss/lay off, if the borrower cannot make the payments anymore, the lender can take the car.

Dear Friend,


Certainly YES... But that is limited to the car.


In case of unsecured loans, not only you pay higher interest from beginning, but in case of bad events, they will take your car ANYWAY.. So, in both of the cases, they will anyway take the car.

So, instead of paying higher interest in case on unsecured loans, you should go with car as the collateral.


I hope this helps...

Warm Regards,

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