NEWS & ADVICE : PERSONAL LOAN
An analysis of alternatives to personal loans
By Vaibhav Aggarwal
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There are times when people face urgent cash requirements, but cannot come up with the required amount from their existing resources. During these pressing times, taking a personal loan from banks seems to be the only way out. Some people are also tempted to avail personal loans because it can be taken for any personal requirement, there is minimum paperwork involved in processing of these loans and these are unsecured loans on which banks usually do not ask for collateral.

But due to its high interest rates it is also one of the most expensive options for fulfilling urgent needs. Most banks charge anywhere between 15 % to 24 % interest on personal loans. In terms of being expensive, personal loans are second only to taking cash advances on credit cards which have interest rates of over 30%. Due to its high interest rates, it becomes unviable for some people to take personal loans.

Given the drawbacks associated with personal loans, a person is forced to think of what could be an alternative to this? Today, there are other cheaper options available in the market which can be used to raise cash for various purposes in a short span of time.

Gold loans

Gold loans can be considered as one of the most popular substitutes of personal loans. Gold loans score over personal loans because of lower rates of interest offered on them as against that of personal loans.

Gold ornaments or coins can be pledged to take loans from banks or gold loan companies like Muthoot Finance or Mannapuram Gold. Typically, interest rates on gold loans depend upon the value of gold provided as security to the banks and amount of loan taken. The higher the difference between them, the lower will be the interest rates offered on the loans. For example, if loan is taken for 80 % to 90 % of the value of gold then about 12 % to 15 % interest rate is charged on the loans. This is the highest rate of interest which is charged on these loans.

Gold loans also consume very less processing time thereby scoring again over personal loans. These loans are granted within 24 hours to 1 day of applying for them. They do not have pre-processing charges and involve easy paperwork of the likes of address proof and photo id proof.

Loans against insurance policy

Another good alternative to taking a personal loan is taking loans against existing insurance policies such as LIC endowment policy etc. These loans can be availed by pledging the insurance policies to the banks, which generally provide loans up to 90 % of the current surrender value of the policies. Interest rates offered on these loans range from 9% to 13 %.

But, loans can be taken against only on those policies which have their premiums paid on regular basis for three years or more. In other words, loans must be at least three years old for them to be pledged for availing loans. It takes about 2 to 3 days to get loans against insurance policies.


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(Comments Posted : 10) Post Your Comments
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