Cheaper And Better Alternatives To Personal Loans

When you need quick and easy access to finances, personal loans seem to be the best way out. This is because personal loans do not require any collateral or guarantor and are usually disbursed within 72 hours if your loan application is sanctioned. As easy as it seems to access personal loans, you must however know that the cost of borrowing or the rate of interest that you are required to pay on such loans is pretty high between the range of 15-24%.

The rate of interest is determined by your credit profile and CIBIL score and several other factors such as your income, how much of debt you already have, the reputation of your employer, the length of your service and others to mention a few. Your CIBIL score serves as a barometer of your credit service track record and is a major determinant of the interest rate you are required to pay on a personal loan.

If you have been regular with your credit card repayments and maintain basic financial discipline, your CIBIL score should be in the range of 750 and above (out of 900) which is considered satisfactory. If your CIBIL score is lower than this level, your loan application for a personal loan may either get rejected or you may be required to pay a higher rate of interest between 20-24%, which needless to say is pretty high. If you do not want to borrow money at such a high rate of interest and yet need the funds, here are some other options you may consider:

Loan Against Property

If you are property owner in India, your financial woes may be addressed by a loan against property. If you need a loan amount that is upwards of Rs. 5 lakhs, a loan against property will suffice for you. Banks offer loans against residential or commercial property and that can range between 60-80% of the market value of the property and the interest rates and is offered for a tenure of 3-5 years. The interest rates on such loans range between 11-14%.

Top Up Loan

If the amount of loan you require is not that high, you can also consider a top up loan on your existing home loan. Such loans are usually offered after you have already established a service track record with your existing lender. In other words, you can apply for such a loan after you have established a repayment track record of at least a year with your existing home loan lender. These loans are available at 0.25-1.25% over the current prevailing home loan rate and have a maximum tenure of 15 years. The loan amount is usually capped at Rs. 5 lakhs by most banks.

Gold Loan

Gold loans are one of the fastest and easiest alternatives as compared to a personal loan and are available at an interest rate of 12-15% against gold ornaments, coins or any other form of physical gold. There are several gold loan institutions today where you can access a gold loan of anything between Rs. 10,000 to 15 lakhs easily for a short term of up to 12 months. Several banks offer gold loans too. All you have to do is to approach one of these lending institutions with your physical gold for an assessment. Based on their assessment you are likely to get a loan of up to 80% of the value of your physical gold instantly with minimal documentation.

Loan Against Other Investments- FD/LIC Policies And Securities

When you are in dire need of funds, you may also consider taking a loan against your existing investments. Here are the main features of a couple:

Loan Against FD Or An Overdraft Facility

1.   Value – Loans can be availed up to 85-90% of the value of the FD

2.   Rate of Interest – Interest rates are usually 1-2% higher than the rate of interest the bank is offering you on the FD

3.   Tenure -You can opt for any tenure so long as the tenure does not exceed the maturity date

Loan Against Securities

1.   Value – Loans can be availed up to 50-60% of the value of securities. Loan amount can be anything between Rs. 1-20 lakhs

2.   Rate of Interest – Interest rate range between 13-16%

3.   Tenure – Initially you can get a loan for one year and renew it as per your requirement.

Similarly, you can take a loan against your other existing investments such as mutual fund units, insurance policies, national savings certificate (NSC) and even insurance policies. Taking a loan against these securities is a much more prudent thing to do rather than selling them of in haste when you are in dire need of funds. Thus as you can see, taking a personal loan need not be your only resort when you need funds urgently. All you need to do is to have a calm head over your shoulders and decide which is the best option for you. If you still think you cannot #BorrowRight, we at RuLoans are at your service.

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