Personal loans have long been the go-to solution for quick funds. With minimal documentation and no collateral, they offered easy access to money. But now, borrowing behavior is changing. Secured loans like gold loans, home loans, and loan-against-property are gaining ground, raising the question: Are personal loans losing their shine?
Why Personal Loans Are Losing Popularity
1. Rising Interest Rates
Personal loans often come with 12–24% interest, while secured loans are available at 8–12%, making them more attractive.
2. Stringent Credit Score Requirements
Unsecured personal loans heavily depend on CIBIL scores, limiting access for many borrowers. Secured lending provides options even for those with weak credit.
3. Larger Loan Amounts
Secured loans, backed by collateral, allow higher borrowing limits compared to capped personal loans.
4. Flexible Repayment Terms
Secured loans often come with longer tenures and customizable repayment options.
5. Economic Uncertainty
In times of inflation and financial instability, lenders prefer secured loans due to lower default risks.
Benefits of Secured Lending for Borrowers
Lower EMIs due to reduced interest rates.
Better eligibility without heavy reliance on credit scores.
Opportunity to leverage assets like gold, property, or investments.
Potential tax benefits (especially in home loans).
The Drawbacks of Secured Lending
Collateral Risk: Assets may be seized if repayments are missed.
Processing Time: Some secured loans (like LAP) involve longer paperwork.
Valuation Dependency: Borrowing capacity fluctuates with asset value (gold price, property rates, etc.).
The Future of Lending in India
The shift does not mean the end of personal loans. Instead, India is witnessing a balanced approach where:
Young professionals still prefer small personal loans for quick needs.
Households are leaning towards secured lending for larger expenses like education, business, or weddings.
Digital lending platforms are expected to bridge gaps with faster approvals for both secured and unsecured loans.
Conclusion: A Golden Middle Ground
Personal loans are losing some of their appeal, but they remain relevant for short-term needs. Secured lending, however, is emerging as the preferred option for affordability, flexibility, and higher loan amounts. Borrowers must assess their repayment capacity and risk tolerance before making the choice.
FAQ
Q1. Why are people shifting from personal loans to secured loans?
Because secured loans offer lower interest rates, higher borrowing limits, and easier access even with weak credit.
Q2. What are examples of secured loans?
Gold loans, loan against property (LAP), car loans, and home loans are common types.
Q3. Is it better to take a personal loan or a secured loan?
It depends on your need — personal loans are fast but expensive, while secured loans are cheaper but risk collateral.
Q4. How do secured loans affect credit scores?
Timely repayment improves your score, but defaults may risk both your score and the collateral.
Q5. Will personal loans disappear in the future?
No, but they may remain popular only for small-ticket, urgent financial needs, while secured lending dominates bigger loans.
Published on : 30th August
Published by : SMITA
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