Over our lifetime, we accumulate a number of assets which may include high-value ones like a home, a piece of land or other real estate investments; other assets like gold, vehicles; or investments like stocks and shares, etc. And in life, we face many emergencies and situations where we need money to tide through the crisis. 

In face of such situations, you must have thought it would have been better to save money for emergency than invest in assets. But then did you know many of these assets can be used as a collateral or pledged to get a loan? 

The advantage of a collateral loan is that you continue to hold ownership over the asset but is only temporarily pledged with the lender till the time you make successful repayments towards your loan accounts. And once the loan is cleared, you get the asset back in your possession without any hassles of change of title, etc. The other advantages being: 

  • A chance to build your credit score 

  • These loans are available even for those with no or low credit score as they are based against an asset 

  • Open-ended utilization of the loan 

Want to know more about which assets could be used as collaterals for loans? Read on to find out more. 

Personal Loans vs. Loans Against Collateral 

 Personal Loans 

 Loans Against Collateral 

 Credit Score is a must 

 No credit score required 

 Higher interest rate 

 Lower interest rate 

 Only credit score is affected if the   loan is not repaid 

 Apart from credit score, you could also lose your property if you fail to repay the loan 


Loan Against Property 

An investment in real estate is definitely one of the biggest investments that one makes during his or her lifetime. It could be done through own funds or through a loan. However, the important fact is that it can be pledged.  

Features Of Loan Against Property 

  • A home, commercial complex or a piece of land can be mortgaged against the loan 

  • The property is subject to valuation by the experts appointed by the lender before deciding the loan value 

  • The age of the property, the state in which it is, location, clear title are some of the factors that determine the value of the property 

  • An interest rate of 10-15% is charged against the loan depending upon many other factors but is lower than the rate of interest on a personal loan 

  • Loan to the value of 60-75% of the value assessed by the lender is allowed as a loan 

  • Tenures of these loans can be up to 15 years  

  • Extensive documentation is required as it is a loan based on an immovable property 

  • This kind of loan is ideal for funding higher education, starting off a business or funding other big-ticket spends like buying another property 

Additional Reading: Know the differences between a home loan and a loan against property 

Gold Loan

We Indians have a natural affinity towards gold and according to reports, Indian households have close to 23000-24000 tonnes of gold. With soaring value of the yellow metal, gold makes up for a big chunk of the assets owned by households. This is largely an illiquid asset as the holding is generally in the form of jewelry or gold coins/bars.  

Yet it can be put to use for useful reasons by availing a loan against its security.  

Some of the features of a Gold Loan are 

  • Generally accepted quality of gold is between 18-24 carat 

  • A loan to value of 75-80% is allowed 

  • Less documentation is required for availing the loan as gold is offered for security which is appraised by the gold loan company 

  • The value of gold is assessed at market value always irrespective of the price of the gold that you bought it for. This works in your favor in a rising gold price scenario 

  • The gold pledged is held safe in the vaults of the company, saving you fears about safety of the asset pledged 

  • A processing fee of 1-3% is charged against the loan 

  • Interest rates on gold loans range between 9-15%  

  • Credit score is not mandatory for a gold loan as the loan is secured against your asset 

  • Gold loans can help you better your credit score if you are regular with your loan repayments 

Additional Reading: Gold Loans or Personal Loans which one should you choose and why? 

Fixed Deposit 

Fixed Deposit is a great avenue for investment and is preferred route as it is counted among one of the safest investments. A loan or an overdraft can be easily availed against your fixed deposit. An important feature is that loans against fixed deposits can be availed even without breaking your Fixed Deposit.  

Features Of A Loan Against Fixed Deposit 

  • Unlike other loans, no processing fee is charged on a loan against fixed deposit 

  • Banks generally allow 70-90% of the amount held as FD as a loan 

  • Your deposited amount is in no way affected by the loan and continues to earn interest 

  • It is a very efficient way to raise a loan in case of emergency situations 

  • An interest rate of a percentage or 2 higher than your FD rate is charged against the loan 

  • The repayment tenure can be anywhere between a few months to 5 years depending on the amount of loan, repayment capacity and rules and regulations as decided by the bank 

  • However, the amount of FD cannot be withdrawn during the tenure of the loan or till the repayment of the loan, whichever is earlier 

Additional Reading: Learn more about Loans against Fixed Deposit 

Loans against Securities 

We frequently take life insurance policies or invest in mutual fund units for protecting the future as well as an investment.  Like fixed deposits or other assets like gold or real estate units, insurance policies or mutual fund units can also be used as a security to avail loans. In other words, it is also called as assignment of policies or securities.  

Features Of Loans Against Securities 

The market value of mutual funds and securities could fluctuate, hence a margin of as low as 50% could be considered as loan to value. 

  • When it comes to insurance policies, only endowment policies or money back policies are allowed as securities 

  • You wouldn’t need to liquidate your investments for the loan 

  • A lien will be created against your investments so that you cannot sell them while there is an ongoing loan 

  • An interest rate of 10-11% may be payable against the loan, in addition to processing fee 

  • Loans are sanctioned quickly if you hold securities in the dematerialised form 

All the loans that we talked about here are generally available at a rate of interest that is lower than a personal loan. However, it is important to understand that if you fail to pay up the loan on time, you may risk losing your investment. Therefore, it is very important to borrow only as much as you can afford to pay.