There are different types of loans you can take if you need funds in an emergency. Asset-backed loans like loan against mutual funds, gold, property and so on, may be a better idea than personal loans when it comes to meeting emergency expenses.
Here is a look at seven types of loans you can consider if you need money at short notice.
Also read:Got an offer for credit card upgrade, limit increase? How to decide if you should go for it
Personal loan
- Interest rate: 10-29%
- Collateral: Not required
- How much loan you get: You can get as much as you want provided your credit profile is good.
- Pros and cons: Since there is no collateral, banks cannot seize your assets if you default. However, this is also the reason personal loans are among the costliest loans. Loans are disbursed quickly.
Loan against car
- Interest rate: 10-22%
- Collateral: Your car
- How much loan you get: 50-200% of the car value.
- Pros and cons: If your car model is a popular one with a good resale value, you can get a bigger loan amount. Models that are out of production are not eligible.
Also read: Quick, easy personal loans may become difficult now as RBI tells banks, NBFCs to be more careful
Loan against mutual funds, shares
- Interest rate: 9-11.25%
- Collateral: Mutual fund and stock investments
- How much loan you get: According to the HDFC Bank website, Equity Shares: Get loan up to 50% of the present value of the Shares. Equity Mutual Funds: Get loan up to 50% of the NAV (Net Asset Value). Debt Mutual Funds/ FMPs: Get loan up to 80% of the NAV
- Pros and cons: Dividend is paid to the unitholder while loan is being repaid. Bank can sell shares or ask for extra investments if there is a dip in share price.
Loan against FDs
- Interest rate: Banks charge an interest rate that is 50-200 basis points higher than the interest rate paid by the FD.
- Collateral: Bank fixed deposits
- How much loan you get: Up to 70-95% of the value of deposit. “Avail Loan up to 95% of the value of your Time Deposit,” according to the SBI website.
- Pros and cons: A loan against your fixed deposit (FD) is one of the most cost-effective and easiest possible loans available in the market. No additional documentation, no credit history check, comparatively low interest rate, and fastest disbursal. Banks don’t grant loans against fixed deposit opened in the name of a minor. If the deposit is held jointly, then all account holders have to sign the loan documents and are responsible for repayment. If the loan is not repaid then the bank can close the account to recover dues.
Loan against life insurance policy
- Interest rate: The interest rate charged is based on the premium that has already been paid and the number of premiums. The more the amount and number of premiums, the rate of interest will be lower.
- Collateral: Life insurance policy
- How much loan you get: 85-90% of the surrender value of the policy.
- Pros and cons: Loan against policy is given both by banks and insurance companies. However, not all policies are eligible for the loan. Policy needs to be assigned in name of the lender. If loan plus interest exceeds policy’s cash value, the policy could lapse.
Loan against property
- Interest rate: 8.50% – 18.00%
- Collateral: Physical property
- How much loan you get: 60-70% of the property value.
- Pros and cons: Documentation is similar to home loan but the processing time is less. Prepayment charges apply, around 3-5% of the principal amount due.
Gold loan
- Interest rate: 8-24%
- Collateral: Physical gold
- How much loan you get: “The limit of your loans is directly proportional to the value of gold assets you provide. However, Minimum Loan amount: Rs. 20,000/- & Maximum Loan Amount: Rs. 1,50,00,000/- can be availed by a single customer/Family/Group at any point of time at the discretion of the Bank. The LTV – loan to value – ranges from 65% to 75%,” according to Kotak Mahindra Bank.
- Pros and cons: Sanctioned in a few hours, application for the loan doesn’t require too many documents. You need to pledge your gold holding, which may be sold off by the lender if the loan is not repaid on schedule. Only gold jewelery between 18 and 22 karats and bank-minted coins (up to 50 gms per client) can be presented for gold loan.
