Kannan’s wedding was fast approaching. His hard-earned savings wasn’t sufficient to cover all the expenses of his wedding preparations. Having no time to think of the best way to gather money, he applied for a personal loan in a hurry. Being the first-time borrower, the lender agreed to sanction him a loan at an interest rate of 17%, which he immediately accepted it due to the circumstances. Though he was initially happy about securing a loan for meeting his immediate need, soon he found himself paying most of his earnings for the loan. This situation could have averted had Kannan took time to explore the best ways to acquire a cheaper loan.
If you are in a similar situation, you are in luck as we have picked up some of the best alternatives to personal loan which can save you a lot of money.
#1. Gold Loan
When you are in an immediate need for money, a gold loan can help you secure the money within a day. Most lenders are willing to lend against the gold as they have the advantage of collateral. The documentation is minimal, and the loan is processed quickly in less than a day. The interest rates on gold loans ranges between 11% to 15% which is indeed lower than a personal loan.
#2. Loan Against Insurance Policies
Many take insurance policies mainly for getting tax benefits and investment purposes. It is still unknown to many that an insurance policy can be used to avail a loan. The borrower can get maximum of up to 80%-90% of surrender value of the policy. However, the amount depends on the type of the policy you have taken. The interest rate on the loan usually ranges between 10% to 12%, but it could vary as per the revision and insurance policy. Hence, you can check with the lender before taking the loan.
#3. Loan Against Fixed Deposit
If you have a fixed deposit in a bank, you may want to withdraw it prematurely in times of emergencies. For doing so, you will end up paying a penalty and moreover, it can disrupt your saving plans. Instead of doing that you can secure a loan against your fixed deposit at low interest rate. It is one of the best alternatives to a personal loan. You can avail the loan up to 80% of your deposited amount. The interest rate on the loan is lower than personal loans.
#4. Loan Against PPF Account
Loan against your PPF account is another viable option to gather funds for your immediate needs. The maximum loan amount would be 25% of the balance on the PPF account. You become eligible for this type of loan only after 3 years of having the account. The maximum loan tenure is up to 3 years, and the interest rate starts from 10.75% onwards.
#5. Loan Against Mutual Funds
As mutual fund is an asset, you can get a loan by pledging it. The maximum loan amount would be up to 50%-60% of the value of the fund. The lenders provide up to Rs. 2 Lakhs on equity funds and up to Rs. 5 crores on debt funds. The interest rate on the loan is decided at the time of the application. The rates generally range between 11% to 14%. As the value of the mutual funds could be volatile as per the market conditions, the lender may ask you to replenish additional margin if required.
Additional Reading: Loan Against Securities
#6. Loan Against Shares
Eligible list of securities such as your stocks and shares can be pledged to avail a loan for your financial needs. You can get up to 50% of the market value of your shares as loan amount. It ranges between Rs. 50,000 to Rs. 20 Lakhs, but some lenders provide loans up to Rs. 10 crores.
Additional Reading: Get loan against shares
The above-mentioned alternatives help you secure a loan at better terms while you can continue to have a stable financial planning.