A loan is a sum of money that’s borrowed and is to be paid back with an interest within a said period of time.
For collateral loans, the bank will take possession of assets that are being used as collateral for the loan which may include a car, a house, investments. However, with salary loans, the bank does not gain access to the assets of the borrower but on depends on the credit and the good reputation of the borrower. Basically collateral is what the lender accepts as security for the loan if the borrower defaults on the loan then the lender can seize the assets so as to recoup the money from the loan.
Collateral loans will be found to have lower interest rates since they are secured with assets and the borrower has a compelling reason to repay the loan. On the other hand, Salaried loans are approved without any security since the borrower qualifies for a loan basing on the credit history and income, the lender does not have the right to take any physical asset of the borrower if he defaults on the loan however the borrower will damage his credit reputation.
Salary loans usually depend on credit history and income of the borrower.
