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Personal Loans are the best funding options for people who nee . . .
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Emergencies come uninvited, and along comes the need for substantial funds. The financial pressures of a medical emergency, urgent home repair, last-minute wedding expenses, debt consolidation, spontaneous vacation, or a study abroad programme with its last date running out are huge. Even if it is not urgent, there are certain expenses you just cannot neglect.
Fortunately, today, you might find several loan options to borrow in times of need. Two of the most popular are a Personal Loan and a Loan Against Securities. Both loans have a common advantage: You can use the loan amount for any legal purpose. The following sections will help you determine the best funding option for your needs.
As the name suggests, a Loan Against Securities is a secured loan you can borrow against a security as collateral. The securities might include mutual funds, insurance policies, mutual funds, non-convertible debentures, NSCs, shares, etc. Each lending company has a list of securities they can accept as collateral. For example – Hero FinCorp offers a Loan Against Property. The interest rates are lower than Personal Loans due to a lower risk for the lender. The loan amount depends on the value of the securities presented as collateral. Income and credit scores are other crucial factors determining your loan amount and interest rates.
Are you confused between borrowing a Personal Loan or a Loan Against Securities? You must first understand the difference between the two:
Parameter | Personal Loan | Loan Against Securities |
Collateral Requirement | Personal Loans are unsecured loans you can borrow without any collateral, guarantor, or security. | Loans against Securities are secured loans you can borrow against a security you own, such as a mutual fund, bond, share, etc. |
Interest Rate | Since Personal Loans have no collateral for backup, lenders charge higher Personal Loan interest rates to cover the risk. | If you fail to repay the loan, the lender has your security to recoup their money. Therefore, they charge a lower Loan Against Securities interest rate due to the lower risk involved. |
Loan Amount | Lenders have a maximum limit to the loan amount they can lend without security. | The loan amount depends on the asset’s value. |
Repayment Tenure | The repayment tenure is shorter, ranging from 12 to 60 months. | The repayment tenure is longer, up to 15 years. |
Documentation | The application is 100% online with minimal documentation involved. | The application process requires extensive documentation related to the securities being offered. |
Here is a comparison of interest rates offered by different banks and NBFCs for both loan types:
Lender’s Name | Personal Loan Interest Rates | Loan Against Securities Interest Rates |
Hero FinCorp | 15% p.a. onwards | 11% p.a. onwards |
HDFC Bank | 10.5% p.a. - 21.00% p.a. | 9.90% p.a. |
Yes Bank | 10.99% p.a. onwards | 9.00% p.a. onwards |
HSBC Bank | 9.99% p.a. - 16.00% p.a. | 8.55% - 12.75% |
Axis Bank | 10.49% p.a.- 22% p.a. | 9.00% p.a. onwards |
Kotak Mahindra Bank | 10.99% and above | 9.25% - 13% p.a. |
ICICI Bank | 10.75% p.a. - 19.00% p.a. | 16.80% onwards |
Bank of Baroda | 10.90% p.a. - 18.25% p.a. | 9.20% to 9.45% |
State Bank of India | 11% p.a. - 14% p.a. | 8.55% - 11.05% |
Federal Bank | 11.49% p.a. onwards | 12.50% p.a. onwards |
Punjab National Bank | 11.40% p.a. onwards | 10.40% p.a. onwards |
While deciding between a Personal Loan and a Loan Against Securities, you must understand that both funding options have advantages that the other lacks. Here’s a look at the pros of both types of loans:
You can use a Personal Loan for almost any purpose without any usage restrictions.
Due to high competition in the market, you will find a loan plan with reasonable interest rates.
The borrowing limits are higher according to the lender’s policy.
These are collateral-free loans that do not pledge any security, asset or guarantor.
Regular Personal Loan repayment helps build a credit history.
With minimal formalities involved, these loans are faster and easier to access.
The repayment schedule is easily manageable, with flexible loan terms of up to 60 months.
The Loan Against Securities interest rate is lower due to the lower risk involved for the lender.
A Loan Against Securities can have two repayment options: demand or overdraft.
The returns and dividends continue accruing even during the loan term.
Easy processing due to no income proof and other documents involved.
While both loan types have advantages, they have some disadvantages as well. Let’s take a look at them:
The interest rates, processing fees, and other charges are higher due to more risk for the lender.
Irregular repayment habits may increase your debt over time.
Since the repayment terms are shorter, the EMIs may become unmanageable even if you choose the longest possible tenure.
Missing even a single EMI will have consequences on your credit score.
The loan amount is limited according to the value of the pledged securities.
You cannot sell the securities if they become profitable during the loan term.
Lenders have a limited list of securities they accept as collateral against a loan.
Visit the lender’s website or open the loan app.
Select the option to apply for a Loan Against Securities.
Log in to your Demat account.
Select the securities you may pledge as collateral against the loan.
Provide additional details and documents.
Let the verification process complete.
Receive a loan offer with loan amount and interest rate according to the value of securities.
Accept the loan offer to begin the disbursal process.
The Personal Loan application procedure is completely online, which you can complete by following these simple steps:
Download the Hero FinCorp app or visit our official website.
Go to the Personal Loan page and click Apply Now.
Enter a few necessary details like your name, contact details, employment information, loan requirements, etc.
Scan and upload your identity, income, residence proofs, and other essential documents.
Wait for verification and approval.
Accept the loan offer to initiate the disbursal process.
Both Personal Loans and Loans Against Securities are lucrative funding options with unique pros and cons. Your final choice depends on your loan requirements, risk appetite and repayment capacity. Whether you borrow a Personal Loan or a Loan Against Securities, ensure you repay it on time to save your credit score and become debt-free.
1. What is a loan taken against security called?
A loan taken against a security is called a Loan Against Securities.
2. Why do people take loans against securities?
People take Loans Against Securities to cover their urgent or planned expenses, like medical emergencies, home renovation, weddings, debt consolidation, big-ticket purchases, foreign vacations, study abroad programmes, etc.
3. Can I take a personal loan and invest in stocks?
Personal Loans have no usage restrictions. So, you can take a Personal Loan and invest in stocks. However, it is not advisable as the market is volatile and may result in loss if the stock market goes down. You must take this step only if you are sure of repayment, even under tough market conditions.
4. What are the advantages of Loans against securities?
Low-interest rates, flexible repayment, accruing returns, and minimal documentation are the most notable advantages of Loans Against Securities.
Disclaimer: The interest rates presented in this blog are for informational purposes only. The actual interest rates and terms offered by banks and financial institutions may vary and are subject to change. Before making any financial decisions or commitments, we strongly recommend consulting with the respective banks or financial institutions to get the most up-to-date and accurate information. The blog content provides general information and should not be considered as financial advice. Any financial decisions you make should be based on a thorough understanding of your individual financial situation and careful consideration of the options available to you. Always conduct your research and seek professional advice if necessary.
The act of paying out money for any kind of transaction is known as disbursement. From a lending perspective this usual implies the transfer of the loan amount to the borrower. It may cover paying to operate a business, dividend payments, cash outflow etc. So if disbursements are more than revenues, then cash flow of an entity is negative, and may indicate possible insolvency.
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