We need loans to fulfill the big dreams that can cost us a lot of money. But there are different types of loans available in the bank. For example, home loans, education loans, medical loans, secured working capital loans, unsecured working capital loans, etc. 

Difference between secured working capital loan and Unsecured working capital loan- 

Secured working capital loan- secured loans are only granted when you put an asset as a security of your loan repayment. Banks and money lenders offer secured loans to people they provide collateral in exchange for the loan. Then this collateral can be anything like your house, car, plot, shares, property, gold, etc. But it should be an asset owned by the money borrower. 

In case, you were not able to repay the amount on time, the bank or the moneylender can have full authority over your asset. These loans are only granted if a large amount is needed and are common loans in the business sector. Also, these loans have a high rate of interest compared to other loans. 

Unsecured working capital loan- this type of loaning system is contrary to the secured working capital loaning system. Here you are not required to provide any collateral in exchange for the loan to the bank or the moneylender. But it comes with more risks and restrictions. 

A high rate of interest is automatically applied on the loan, and the repayment time is minimum. The money borrowing limit is less compared to the money borrowing limit of secured loans. This loan is granted only after checking your work profile, your income, credit score, banking history, and current debts. 

Based on all these factors the loan amount, interest rate, and repayment time are decided. Examples of unsecured working capital loans are credit cards, personal loans, and student loans. 

Things to remember while applying for an unsecured working capital loan- 

1. There should be no risk of default present. You can’t take risk of big businesses being collateralized. As you have not provided any collaterals the risk of not repaying the amount grows higher day by day. 
2. The time provided to repay the loan amount is less. It is because the risk of the unsecured working capital loan is high and the lenders can’t make much profit from instant lending and repaying. 
3. There should be no delay while repaying the loan as it might risk your credit rate score by lowering it. 
4. Your banking history and credit score decide the loan amount you will be granted. If you have a low credit rate score then you might not be able to apply for the unsecured working capital loan. 
5. Constantly borrowing money through an unsecured working capital loanleads to poor banking history and average credit score. It is not ideal to always apply for a loan as it might risk your chances of borrowing money from banks or money lenders in the future.