Life is full of uncertainties. In times of financial crisis, loans are an important avenue to get emergency funds. Secured loans are preferable since the interest rates are lower than unsecured loans and the customer does not need to sell the asset.
Here are three best secured loan options that come without any restriction on end usage of the funds:
Gold loans act as a saviour for many in need of money, especially for those who do not have a stable job or have a muted credit score. Loans against gold act as a popular and quick means to raise funds.
Gold loan is a secured loan and, therefore, interest rates are lower than the rates for personal loan making it a much-preferred avenue.
Gold loans are typically for short terms, say a year or two, though in some cases they may go beyond that limit. According to latest RBI guidelines, you can get a maximum 90 percent loan amount of your value of the gold pledged.
The cap has been raised from 75 percent earlier to help the common man during the pandemic.
A major advantage of taking a gold loan is the repayment flexibility offered by the banks or NBFCs. There are two gold loan repayment options that most banks are offering — gold loans with regular EMIs and gold loan with overdraft facility.
However, some banks and NBFCs allow the borrowers to just repay the interest component only at the end of the year and renew the loan for another year. He/she does not have to pay EMIs even.
The interest band for gold loans varies between 7 to 12 percent. SBI is offering gold loan at the interest rate of 7.75 to 8.50 percent.
Loan against real estate is highly preferred by lenders. In the case of real estate, the maximum loan amount could be as high as 70 percent of the property’s market value.
The repayment tenure can be up to 15 to 20 years. The interest rates for property loans varies between 8 to 15 percent.
Loan against securities (LAS) is offered against bonds, shares, ETFs, mutual funds, NSC, life insurance policies, KVPs, etc. During the loan tenure, the borrower would continue to receive the return on the pledged securities.
It is usually offered in the form of an overdraft facility. The loan amount depends on the lender’s risk assessment of the securities pledged as collateral.
However, if you are considering pledging shares due to a present financial crunch, it may not be a viable option.
Most banks do not lend more than 50 percent of the value of the security — especially if you are pledging equity shares or mutual fund units as a collateral — as a loan amount. Thus, if you are looking at a loan of Rs 5 lakh you will have to pledge shares/MFs worth Rs 10 lakh.
However, if you pledge debt instruments such as NSC, KVP or non-convertible debentures, an individual can get up to 70% of the present value of instruments as loan.
But for life insurance policies and debt fund units, the loan amount rises to 80 percent of the value.
State Bank of India charges 9.25 to 11.90 percent interest rates on loans against securities.
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