Secured loan option allows borrowers to meet their financial requirements without the need to liquidate their assets to meet the sudden liquidity requirement. These options are credit risk-free for borrowers as they have the option to sell the pledged securities in the event of a payment default. The lower credit risk involved in these loan options makes them a safer choice when compared to credit card or personal loans that also levy heavy interest charges putting extra financial burden.
Here are four secured loan options that you can turn to in case of your sudden monetary options
Loan Against Securities
If you are someone who has invested in several market investments tools such as bonds, shares, ETFs, mutual funds, NSC, life insurance policies, KVPs, etc., you can use them for securing a loan during a cash crunch situation. One benefit of using your securities for a loan is that while they will be pledged against your loan during the tenure, you will continue to get interests, dividends, bonuses, etc. So instead of liquidating your securities in need of cash, you can use them to get security, that way your investment can continue to grow.
The amount of the loan depends against your securities on the lender’s assessment of the value of these market investments tools and is subject to the LTV (Loan to Value) ratio assigned by the RBI for securities. This loan comes in the form of an overdraft facility with a predetermined credit limit. The borrower has the option of taking out the entire sanctioned amount or just a portion of it, depending on his needs.
While the borrower needs to pay the interest amount of the loan every month, they are free to repay the principal amount according to their cash flow till the tenure of the overdraft.
However, if in case the market value of the pledged securities fall to a a point where it affects the LTV ratio, the borrowers will need to meet the LTV ratio requirements by either pledging more securities or by depositing funds with the lender.
If you are going through a cash crunch, a gold loan could be a good option for you to quick loan. These type of loans are the quickest to be sanctioned and are usually cleared within the same day of receiving the application. You can use the gold jewellery or gold coins (With a minimum purity of 18 carats) lying idle in the locker, as security for your loan. The repayment tenure of gold loans usually goes up to 3 years with some lenders also offering longer tenure of 4-5 years. Banks and financial institutions generally offer 75 per cent amount of the current market value of the pledged gold.
One of the key advantages of a gold loan is the flexible repayment option offered by various lenders apart from the usual EMI option, many lenders allow repaying the interest amount upfront and settle principal amount towards the end of the loan tenure. Such flexible repayment options can be especially beneficial for those requiring funds, but lack uniform cash flows to repay through EMIs.
Loan Against Property
If you are looking for a loan for a longer period, you could use your properties as security for your loan. Loan against properties are issued against the pledge of residential, commercial and industrial properties, and the amount could range between 50 to 70 per cent of current market value. The repayment period here can be up to 15, with some lender also offering longer up to 20-year tenures.
While this is a very good option for people looking for bigger loans, LAP may not be suitable for people looking for quick funds as the process of under this could take 2-3 weeks.
You can avail of the benefit of a top-up loan only if you have a home loan running with a good repayment track record. The main factor here is your LTV ratio. The total loan amount outstanding after the top-up loan must be within the same LTV range at which the loan was issued. So, example if you were approved for a loan of 80 per cent of your property value, then the total outstanding principal including the top-up loan cannot exceed this cap of 80 per cent
Additionally, the ensure of a top-up home loan cannot exceed the residual tenure of the original home loan, with most lenders further capping it at 15 years. While the usual time take for disbursal of such loans is generally 1-2 weeks, some lenders have also started offering pre-approved top-up home loans to existing home loan borrowers, with same day disbursal.