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Friday, May 19, 2017

Loan against your Assets

If you are facing a cash crunch, then borrowing from a friend or a relative is the quickest and the most economical option. However, if you are unable to do so, then there are many other alternatives before you go for a Personal loan or liquidating any of your assets...
There are loans like Housing Loan and Education Loan which are taken to fulfill a specific purpose. However, most people are not aware of loans which you can use for any random purpose or personal use, except for the most popular and also the most inefficient Personal Loan. Personal Loan is an unsecured loan and hence is one of the costliest options available - with interest rate ranging from 12% to 18%.

But there are many other options to get you secure loans which are not only cheaper, but can have a longer period as well as a bigger amount. Let us have a look at few such options:

Loan Against Property (LAP)
Loan Amount : You can borrow up to 50-70% of the market value of the property that you are holding.
Tenure : You can get the loan up to a period of 15 years - which is the highest period among all such possible loans.
Interest Rate : You will have to shell out anywhere between 9-12% as the annual interest rate as you pay EMIs for the loan.
Remarks : Most financial institutions insist that the property be insured against fire and other perils during the tenure of the loan. Though such a property is mortgaged with the lender, you are still allowed to continue using it for residential or commercial purposes - which allows you to continue to earn the income from your asset while it is being mortgaged.
Further Reading : All about Home Loans

Loan against Gold (LAG)
Loan Amount : You can borrow up to 75% of property market value
Tenure : You can get Gold loan for a typical period of  1-5 years. Lenders are a little wary of giving Gold loan for longer than 5 years as the predictability of Gold prices is lesser for longer duration.
Interest Rate : You will have to shell out 9-12% as the annual interest rate as you pay EMIs for the loan
Remarks : There is a processing fees also involved with Gold Loan, depending upon the financial institution from which you are lending. Muthoot and Mannapuram are the primary non banking lenders for such loans. The biggest advantage of this loan is the speed of loan disbursal, which is almost instant. You walk into a financial institution with the gold (to be kept as collateral) and an identity card - and walk out with the disbursed amount. It may take you less than 5 minutes to get the loan.
Further Reading : All About Gold

Loan against Insurance Policy (LAIP)
Loan Amount : You can borrow up to 85% of the 'surrender value' of the Life insurance policy. Note that it is not the insured value or sum assured, but the surrender value of the policy that defines the collateral amount.
Tenure : You can get the loan for a period of a maximum of 5 years - depending upon the policy maturity date.
Interest Rate : You will have to shell out 10-13% as the annual interest rate as you pay EMIs for the loan.
Remarks : Loans are possible only against those life insurance policies that have a surrender value. Term Plan, therefore, cannot get you a loan. Only those policies which have attained a surrender value can get you a loan. However, you do not need to surrender the policy to avail of the loan against policy. The borrower still accrues all the benefits and bonuses from the life insurance policy, as applicable. The life insurance policy continues as a normal policy after the loan is repaid.
Further Reading : All about Life Insurance

Loan against FDs / Bonds / Savings Certificates (LAB)
Loan Amount : You can borrow up to 90% of the face value of the bond / Fixed Deposit or the Savings Certificate
Tenure : You can get the loan only up to a maximum time till the maturity of the security deposit.
Interest Rate : You will have to shell out 2-3% above the base rate running.
Remarks : Since 2014, you can also avail loans even against the Infrastructure bonds. Loans against Fixed Deposits are also available to NRIs
Further Reading : All About Fixed Deposits

Loan against Equities (Stocks and Mutual Funds) (LAE)
Loan Amount : You can borrow up to 50 to 70% of the market value of your portfolio or NAV as applicable.
Tenure : You can get this loan only up to a maximum time of 1 year. The lower tenure is primarily because of the higher volatility of the market, and therefore in the collateral value.
Interest Rate : You will have to shell out 13-16% as the rate of interest. The rate of interest is higher primarily because of higher risk involved in the equity market.
Remarks : You are entitled to bonuses and dividends from your portfolio during the period of the loan tenure.
Further Reading : All About Mutual Funds

Loan against Salary (LAS)
Loan Amount : You can borrow up to 10 times your gross monthly income.
Tenure : You can get the loan for a period of 2 - 5 years.
Interest Rate : You will have to shell out 12-15% as the rate of interest
Remarks : You may need to have a salary account with the bank from which you intend to borrow the loan. You may also get a loan from your employer at a much lower rate of interest.



Loan against Rental Income (LARI)
Loan Amount : You can borrow up to 80% of the rent likely to be received in the coming years.
Tenure : You can get the loan only up to the remaining portion of the lease agreement with the tenant.
Interest Rate : You will have to shell out 9-12% as the rate of interest.
Remarks : Banks prefer to lend if the property is leased to a corporate house rather than an individual.
Further Reading : All About Home

Summary
Of all the secured loans that are discussed, Loans against property are highly preferred form of loans in India. They are much more easily available than ever with the surge in banks and NBFCs providing these loans. Along with being cost-effective, these loans are reasonably convenient to avail and repay due to the relatively low interest rates, apart from the fact that these are offered for longest possible tenures.


Cheers

Manoj Arora
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From the Rat Race to Financial Freedom | Happiness Unlimited | Dream On

2 comments:

  1. kindly help clarify hpw Loan against Salary is different from Personal Loan?

    ReplyDelete
    Replies
    1. Quite often, Loan Against Salary is given by the employer itself. The loan amount and the interest rate may vary depending upon your salary and performance in the organisation - unlike a Personal loan

      Thanks
      Manoj

      Delete