Loan against assets: FD, gold or stock-backed? All about it

When in urgent need of funds, taking a loan is one of the easiest solutions. They are easy to process, give access to funds instantly and allow borrowers to meet their short-term needs.

One has the option to choose from multiple loan products available in the market. Some are unsecured loans offered by banks based on credit history. If one does not have a good credit history or is looking for alternatives, other options include getting loans against assets.

These can be fixed deposits, gold or even stocks. Each of these loans has a unique structure, comes with different risks and suits different financial needs.

Loans against FDs are considered the safest. They come with fixed interest and minimal risks as the deposit continues to grow. Gold loans are another easily available option at lower rates.

Loans against stocks are riskier, as market volatility can impact the value of the collateral.

Before picking any one of these loans, it is important to assess your repayment capability. This ensures that while you meet your short-term urgent needs, your long-term financials are not impacted.

1. Loan against FDs: Lenders typically offer loans worth up to 90% of your FD amount. Even borrowers with a poor credit history can avail these loans. Interest rates on FD-backed loans can vary from one lender to another, but are generally cheaper than personal loans. For instance, the State Bank of India offers a loan against an FD at 1% above your FD rate.
2. Loan against gold: These loans are provided by pledging your gold assets to the lender. Typically, financiers offer up to 75% of the gold’s market value based on the price of the metal on that particular day. One can get gold loans starting at around 9% pa. Since gold is considered a safe investment asset, lenders may offer even lower interest rates if it’s in high demand. This is because the value of your collateral increases, reducing the lender’s risk significantly.
3. Loan against stocks: Several lenders offer loans against securities, including investments like stocks, mutual funds and insurance. However, in the case of stocks and equity mutual funds, the maximum value is generally capped at 50% of your portfolio’s worth. This is because equities carry considerable risk due to their high volatility. The interest rates in this type of loan are typically higher due to the higher risk associated with the collateral. For instance, SBI charges an 11.50% interest rate on loans against mutual fund units.