Ever found yourself in dire needs of funds? Here is the easiest way to gain access to monetary aid, allowing people to meet their short-term needs.
If one does not have a great credit history and is still seeking alternatives, one could opt for getting loans against assets. These include fixed deposits, gold or even stocks. Each of such loans offers a unique structure and has different risks and suits that fit varying 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.
Loan against FDs: Banks usually offer loan worth 90 per cent of your fixed deposit amount. Borrowers with a low credit score history end up availing such credit facilities. The interest rates on FD-backed loans vary from one lender to another, however, they usually are cheaper than personal loans. However, the SBI lends loan against FD at 1 per cent above the usual fixed deposit rate.
Loan against gold: These loans are offered basis the gold (safe haven asset) provided to the lender. Usually, financiers offer up to 75 per cent of the gold’s market value based on the price of the metal on that day. One can get gold loans starting at around 9 per cent per annum. 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.
Loan backed by 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 per cent interest rate on loans against mutual fund units.