An analysis of alternatives to personal loans
By Vaibhav Aggarwal
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Loans against Fixed Deposits

In case an individual has a long term fixed deposit, and needs urgent cash then instead of breaking the deposit he/she can take loan against the fixed deposit. This is also called overdraft on fixed deposit. Usually, banks lend up to 75% to 85 % of the deposit amount as loans. The interest charged on loans against fixed deposits is just 1% to 2% higher than the interest rate on the fixed deposit. This means that if the deposit was earning an interest of 8% then loan taken against it will have interest rate of 9% to 10%. The loan needs to be repaid before the maturity of the deposit.

Loans against property (LAP)

Loans can be taken against immovable property like home, plot of land, office space etc. Banks and financial institutions usually provide loans up to 50% to 60% of the market value of the property. Lending institutions may undervalue the assets while granting loans on them so it is advised to get third party valuation done to increase the amount of loan to be availed against the property. But, the interest rates charged on these loans is from 12 to 16 percent, which is close to the interest rates provided on personal loans. It takes up to 7 to 10 days in the processing of these loans.

State bank of India is providing loans against property up to 60 % of the value of the property @ 15.25 %. It provides loans from Rs.25, 000 to 1 crore.

Taking loans against property is recommended only for huge cash requirements of more than Rs. 5 lakh. It should be avoided in case the requirement is less than this amount.

Loan against investments

When in need of emergency funds, an individual can also fall back upon investments such as shares, mutual funds etc. These investments need not be liquidated. They can be used as collateral for taking loans. But, it should be remembered that all shares and mutual funds cannot be pledged for taking loans. Lending institutions usually have their own list of approved mutual funds and shares on which they provide loans. Also, since the value of these assets fluctuate from time to time, banks keep a high margin while providing loans against them. So, for shares worth Rs. 5 lakh, loans are provided for amounts much lesser than Rs. 5 lakh.

Loan from employer

At times, employers also provide loans to employees and the repayments on these loans are adjusted with the salary of the employee. Asking the employer to provide cash advance on salary is also an option which can be used to address an urgent financial need.

These options are some great ways to avoid taking a personal loan not only in terms of interest rates but also in terms of the time taken to address the financial need.

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(Comments Posted : 26) Post Your Comments
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Muhammed Emir Harun (Posted: May 22, 2018)
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