What a secured loan means
A secured loan is a loan backed by something you own. That thing is called collateral or security. If you don’t repay, the lender has the right to sell it and use the money to clear your dues.
An unsecured loan has no such asset behind it. The lender relies on your income and repayment record. Most personal loans, credit cards and BNPL (buy now, pay later) are unsecured. Microfinance loans are unsecured by RBI’s definition: they are collateral-free loans to households with yearly income up to ₹3,00,000.
Common secured loans in India
| Loan | What backs it | Who holds it |
|---|---|---|
| Gold loan | Your gold jewellery or coins | The lender keeps the gold until you repay |
| Home loan | The house or flat | The lender holds a mortgage (a legal claim) on the property |
| Vehicle loan | The car or two-wheeler | The lender’s claim is recorded on the vehicle’s registration |
| Loan against FD | Your fixed deposit | The bank marks the deposit so you can’t break it |
| Loan against property | A house, shop or land you own | A mortgage, like a home loan |
With some loans you keep using the asset, as with a house or a bike. With others, like gold, the lender holds it until the loan is closed.
A gold loan example
Sunita, 42, pledges her gold jewellery. The lender values the gold metal at ₹1,20,000. For a personal-use gold loan up to ₹2.5 lakh, RBI rules cap the loan at 85% of the gold’s value. That makes the most she can borrow ₹1,02,000.
Fictional example. The gold value is made up. On a bullet loan, where you pay everything at the end, the 85% limit also has to cover the interest, so you get less cash.
The limit falls to 80% for loans from ₹2.5 lakh to ₹5 lakh, and to 75% above ₹5 lakh. RBI rules also protect you in two ways:
- After you repay in full, the lender must return your gold within 7 working days. If the delay is the lender’s fault, it must pay you ₹5,000 for each day of delay.
- If the gold is ever auctioned, the reserve price (the lowest price the lender can accept) must be at least 90% of the gold’s value.
Our guide Gold loans explains the bullet-loan catch, auctions and the questions to ask.
What a secured loan is not
- It is not risk-free for you. Missed payments can cost you the asset, and they also go on your credit report.
- A guarantor is not collateral. A guarantor is a person who promises to pay if you don’t. Read our guide on being a guarantor before you agree to be one.
- “Secured” doesn’t mean cheaper in every case. Secured loans often have lower rates, but fees and charges vary. Compare the APR (yearly cost including fees) in the KFS, not the label.
What to check
- Find out exactly what you are pledging and how its value is worked out.
- Ask what happens if you miss one payment, and when the lender can sell the asset.
- Check the APR and all charges in the KFS (Key Facts Statement) before you sign.
- Keep every receipt, such as the gold pledge card or the list of property papers you hand over.
If you are finding it hard to keep up with a secured loan, talk to the lender before the due date. Our page Hard to pay? has practical steps. To see the EMI and total cost of a loan, use the EMI & total cost calculator.