Many of us opt for personal loans — when we can't (or don't want to) turn to friends or relatives for a soft loan — to tide over unseen shortfall in funds.
Sadly, most of us don't even consider other options available like loan against assets, shares, gold, property and so on. It is strange considering goldfinance companies have been on an overdrive in the last few years. Even moneywise, it makes perfect sense to take a close look at asset-backed loans.
Compared to the interest rate of 16% to 24% on personal loans, loans against assets come much cheaper at 12% to 14.5%. But the problem is you can't club all these asset-backed loans in one bracket. "Each one of these asset-backed loan has its own advantages and disadvantages.
You have to choose one of them only after analysing your needs in detail," says Satish Mehta, co-founder and director, Credexpert, a credit counselling entity. And the needs could be — the purpose of the loan, documentation requirement, time you have and how much money you want to raise.
PURPOSE OF THE LOAN
Loan against gold and securities work for relatively smaller amounts that you would like to pay off within a short timeframe. For example, if you are keen on a loan to fund your holiday, you may be better off borrowing against gold or securities.
But for larger expenditures, like a marriage, loan against property works better. Typically, repayment tenure is longer for a loan against property compared to a loan against gold, which helps fund larger expenditures.
For an average individual, market value of movable assets such as gold and securities is generally lower than the market value of the property. Hence in most cases large expenses are funded using loans against property. You can choose to take an overdraft facility against your house, where the bank approves the borrowing limit against a house.
If you plan it well, you can use this facility to meet any contingency, too. This works for those who do not have much of free cash flow each month and cannot maintain emergency funds. Though you may not use the overdraft, still you may have to pay the processing fee of around 1% of the overdraft limit.
DOCUMENTATION REQUIRED
Bankers differentiate between loans against movable and easily realisable assets, such as gold and securities, and loans against immovable and illiquid assets, like property. "In case of gold loans, lenders will be keen on 'know your customer' requirements than documentation pertaining to loan repayment ability," says Harsh Roongta, CEO, apanapaisa.com.
Sadly, most of us don't even consider other options available like loan against assets, shares, gold, property and so on. It is strange considering goldfinance companies have been on an overdrive in the last few years. Even moneywise, it makes perfect sense to take a close look at asset-backed loans.
Compared to the interest rate of 16% to 24% on personal loans, loans against assets come much cheaper at 12% to 14.5%. But the problem is you can't club all these asset-backed loans in one bracket. "Each one of these asset-backed loan has its own advantages and disadvantages.
You have to choose one of them only after analysing your needs in detail," says Satish Mehta, co-founder and director, Credexpert, a credit counselling entity. And the needs could be — the purpose of the loan, documentation requirement, time you have and how much money you want to raise.
PURPOSE OF THE LOAN
Loan against gold and securities work for relatively smaller amounts that you would like to pay off within a short timeframe. For example, if you are keen on a loan to fund your holiday, you may be better off borrowing against gold or securities.
But for larger expenditures, like a marriage, loan against property works better. Typically, repayment tenure is longer for a loan against property compared to a loan against gold, which helps fund larger expenditures.
For an average individual, market value of movable assets such as gold and securities is generally lower than the market value of the property. Hence in most cases large expenses are funded using loans against property. You can choose to take an overdraft facility against your house, where the bank approves the borrowing limit against a house.
If you plan it well, you can use this facility to meet any contingency, too. This works for those who do not have much of free cash flow each month and cannot maintain emergency funds. Though you may not use the overdraft, still you may have to pay the processing fee of around 1% of the overdraft limit.
DOCUMENTATION REQUIRED
Bankers differentiate between loans against movable and easily realisable assets, such as gold and securities, and loans against immovable and illiquid assets, like property. "In case of gold loans, lenders will be keen on 'know your customer' requirements than documentation pertaining to loan repayment ability," says Harsh Roongta, CEO, apanapaisa.com.
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