Financial emergencies can strike anytime. And not everytime your own savings or friends can come to fulfill your requirement. In such cases, personal loan is the best and the only solution.
When any individuals want to take personal loan from any financial institution for his/her financial requirement, there are two options:
- Against Collateral
- Without Collateral
Collateral means pledging your assets/belongings as a security with the lender and get finance against them. Getting a personal loan without collateral is expensive for the borrower because of high interest as the risk is high for the lender.
Opposite is the case when taking loan against collateral. The interest rate is low and so is the risk to the lender. Most importantly, the credit score is not an eligibility criteria in most cases and the processing is quick compared to overdraft without collateral.
There are many types of collateral’s lenders accept in India. And here is the list of collateral’s borrower can pledge and get personal loan against them:
Fixed Deposit: If an individual has fixed deposit account in his/her name, then you can get personal loan against FD. The loan amount is around 80%-85% of the FD amount kept with the bank. Important point to note is, you cannot get loan whose tenure is greater than the FD tenure. The interest rate charged by the bank is higher than the FD interest rate offered but lower than the traditionally bought personal loan.
Shares: These are also called as loan against securities. If you are an equity investor then you can pledge your shares with the bank and get overdraft loan against it. The loan amount depends on which scrip it is, the previous day’s market value of the shares and the quantity held. Interest is typically charged on the amount utilized and for the time span utilized. You can take loan against a single scrip although most banks ask for shares from two different companies. Every bank has pre-approved scrips against which loan is given. Also loan is not granted if the applicant has shares in physical form, in the name of minor, locked-in, partly paid-up shares.
Mutual Fund: Similar to personal loan against equities, you can pledge mutual fund units and get finance against it. You cannot get loan against every fund you own and every bank has pre-approved funds against which overdraft is given. Applicant can have shares and MF units held in NSDL or CDSL. The loan amount is higher for Equity/ Hybrid/ ETF funds and lower for debt or FMP funds. The net asset value (NAV) is used for calculating the loan amount.
Property: Although taking a loan against property is not recommended, but those who are seeking to get it must know that – loan can be taken by mortgaging residential, commercial property (office or plots), or residential plots, schools, hospitals, etc or industrial property. Loan amount (typically 60%-70% of the value of the property) depends on the net present value of the mentioned property. If the said property is jointly held, then all the co-owners are required to become co-applicants of the loan. Mortgaging your property doesn’t mean, you cannot continue using it. You have full rights to use the property.
LIC Policy: The loan amount depends on the surrender value of the policy and is typically 85% – 90% of the surrender value. Most importantly, the borrower should have paid three premiums at the time of loan application. If the loan repayment is not done before the maturity of the policy, then LIC has the rights to get their money back from the maturity amount.
Gold: These are also called as gold loan and the borrower has to deposit gold ornaments with the lender and get finance against it. However the gold remains in the custody of the lender until the loan amount is paid fully. Which means, you cannot enjoy wearing your ornaments. In return, bank guarantees safety for your gold jewelry. The loan amount mainly depends on the carat (18 to 24) and weight of the gold jewelry in grams, tenure of the loan. You can also get loan against gold coin.
Credit Card: Another option to save money on higher interest rate charged and get instant cash, is personal loan against credit card. There is no application required as this type of loan is already pre-approved and typically existing card holders are offered this type of loan. The loan amount in this pre-qualified loan is within the credit limit. However the applicants must have a good repayment history and credit score.
Other types of assets against which you can get personal loan are:
National Savings Certificate and Kisan Vikas Patra: For meeting financial requirements, you can also get loan against NSC or Kisan Vikas Patra (KVP). The loan amount depends on the age of NSC/KVP. Note that NSC/KVP should be on the name of the borrower.
Almost all leading banks in India – SBI, ICICI Bank, HDFC Bank, Axis Bank, etc. and other financial services provider such as Bajaj Finserv, Tata Capital and others offer loan against above mentioned collaterals. And all credit is granted at the sole discretion of the respective Bank or financial services provider and eligibility criteria is different for each lender which mainly include age, income, past financial transaction history, and number of dependents.