4 Cheaper Alternatives To A Personal Loan FundooMoney

4 Cheaper Alternatives To A Personal Loan

Author: Naveen Kumar

Why are interest rates for personal loans high? Well, personal loan is an unsecured loan with no collateral backing the loan to guard against any default on repayment. That is the reason why personal loans they come with high interest rates. Many people fall upon personal loans during emergencies or to bridge a gap in their own funds for occasions such as marriage in the family. The good news is that there are loans backed by investments as collateral, which can be cheaper alternatives to personal loans. In financial industry parlance, they are called loans against assets. Here is a primer on them. They are also lower cost options than personal loans.

Loan against fixed deposits (FDs) If you have a fixed deposit (FD) and the required loan amount is less than your FD investment, opt for a loan against FD. You will get up to 90 per cent of the FD amount as loan. The interest charged will not be stressful to your finances since it will be just 1-2 per cent above the FD interest rate. So, for a FD paying 9 per cent annually, the loan against FD is likely to be at 10-11 per cent. This will be much lower personal loan interest rates. The other great thing about loan against FD is that the loan gets processed very quickly, in case you approach the same bank which issued the FD.

Loan against gold If you have gold jewellery lying idle and you are not too emotionally attached to them you can get them to work for you by taking a gold loan against them. The rate of interest for this loan would be much lower than the personal loan rate. Private lending institutions such as non-banking finance companies (NBFCs) offer quick disbursal while banks offer a lower interest rate. So, you may like to approach a bank for better interest rate and repayment flexibility.

Loan against financial securities If you have investments in the form of shares, mutual fund units, bonds, National Savings Certificate (NSC), life insurance and others, you can get a loan against these securities at interest rates lower than personal loan interest rates. Typically, lending institutions such as banks offer up to 50% of the value of these securities as loans.

Loan against your car You can get a loan against your car provided it is not older than 5 years. Even though the interest rate charged on this loan is typically higher than other secured loans, you may get a deal where the interest rate is lower than the personal loan interest rates.

To sum it up, if you need money during an emergency, you can consider loans against assets and get a loan at a much lower rate of interest than a personal loan. At such times, it makes a lot of sense taking a look at your various assets and see which can help you get a loan rather than taking an expensive personal loan.