Finance

Loan Against securities Or Personal Loan: Which one Is Best?

Emergencies can strike you at any time and you must have a backup plan prepared for it. There are various financial tools available for getting an instant loan approved, like personal loans and loans against securities. While both have similar terms, let us have a closer look at each. It will help in determining which is better, personal loan or Loan Against securities. 

What is Loan Against Securities?

A form of a loan, in which the borrower pledges their shares, mutual funds, or life insurance policies as collateral to get a loan from the bank is known as a loan against securities.

Benefits of Loan Against Securities:

  1. Instant disbursal of loan.
  2. Pay interest only on the amount you use
  3. Low-interest rate and processing charges
  4. No extra documents required.
  5. Choose the shares and mutual funds you want to pledge.
  6. No prepayment penalty
  7. High loan to collateral value

What is Personal Loan?

An unsecured loan option, where the borrower does not pledge any security as collateral and can get the loan approved based on their income, CIBIl score, and other important details, is known as a personal loan.

Benefits of Personal Loan:

  1. Get a loan without any security
  2. Shorter repayment tenure available
  3. Attractive Interest rate
  4. Rapid Disbursal of loan
  5. Simple Eligibility Criteria

The above definition clearly shows that both have their set of benefits and through both the loan options, you can get an instant personal loan, so how do we decide which one is better?

Personal loan or Loan Against securities, which is better

While opting for a loan, there are important factors that must be considered to get a Fullerton India instant personal loan. These are the factors that will help you decide if a personal loan or Loan Against Securities is better.

  1. Interest Rate being charged: Interest rate plays a crucial part while opting for a loan, so before choosing your loan, make sure to give good consideration to this. As loan Against securities come with collateral, the interest rate charged is lesser than that on a personal loan. If your repayment tenure is more, then you may have to pay a higher interest amount on a personal loan than a Loan against Securities.

However, there is always a scope of negotiation which you can make with your lender.

  1. Holding period of security: If you have invested your money, you also have the option to see the mutual funds or surrender the insurance policy to take care of your finances. However, this will depend on the tenure of security. If the lock-in period is long, then the security can be used as collateral, and help avail some benefits like lower interest rate and higher loan amount.
  2. The value of security: The value of security plays a major role in loans against securities. If the value of the security reduces, and the value of the loan increases as compared to the LTV (Loan To Value) ratio. In such cases, the borrower to avoid any penalty may have to deposit the balance amount in the loan account. 
  3. Kind of security you hold: It is important to know that not all securities are eligible for a loan. If you have an FD or short savings scheme, you must take them up as your first option for pledging. In the case of Mutual funds and equities, various factors come into play during loan approval like market cap, liquidity, and more.
  4. The loan amount needed: Your decision to choosing the right loan option, will also depend on the loan amount you want to borrow. A personal loan is offered by seeing your income, CIBIL score, while a loan against securities is given based on the value of the security being pledged. So you can see the loan amount you are eligible for in either case and then choose the right pick.

Conclusion

Choosing a personal loan or loan against securities can be made based on the above points. What is more important is that you first evaluate why you need the loan and how you plan on using the loan amount. It will help you plan for the loan better. You can use the personal EMI calculator to ensure an efficient repayment tenure, keeping in mind the monthly expenses that you can incur.

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