Cheaper Alternatives To A Personal Loan

You can get loans cheaper than a personal loan. Here are four such loans.

Hello and welcome to FundooMoney, your 24X7 buddy for all your money matters. Personal loan is an unsecured loan with no collateral backing the loan to guard against repayment default. That is the reason 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 your investments as collateral, that can be cheaper alternatives to personal loans. We will provide you the details shortly, so stay tuned.

As we just mentioned, there exists many lower cost loans provided you can provide your investments as collateral. They provide loan rates which are much lower than those of personal loans. In financial industry parlance, they are called loans against assets. Here is a primer on them.

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% of the FD amount as loan. The interest charged will not be stressful to your finances since it will be just 1-2% above the FD interest rate. So, for a FD paying 9% annually, the loan against FD is likely to be at 10-11%, much lower personal loan interest rates. The other great thing about loan against FD is that the loan gets processed very quickly, if you approach the same bank which issued the FD.

Loan against gold
If you have gold jewellery lying idle and to which you are not emotionally attached, 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 interest rates for personal loans. Typically, lending institutions such as banks offer upto 50% of the value of these securities as loans.

Loan against your car
Yes, you heard it right! 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.

We hope you found this useful. Are there other lower cost alternatives to personal loans? Do share with us and others on the channel, your tips by writing in the comments section. For more such actionable personal finance information and regular uploads, subscribe to our channel. Also, visit our website, download our mobile app and stay connected with us on Instagram, Pinterest and Slideshare.