Not able to avail of a personal loan? Consider these alternative credit options.

When you apply in India for any type of loan, the lender, which may be a bank or NBFC, does an in-depth check of your financial health. From your credit profile to your income, employer/professional experience, to existing debts, everything is carefully evaluated. In case your SBI PAPL loan or any other personal loan application through other lenders is rejected on any ground, or you are being provided with a higher SBI personal loan interest rate, do not lose hope as there may be other alternatives that you can explore, especially if you hold any type of collateral.

Top-up home loan

Existing home loan borrowers with good repayment history are eligible for top-up home loans. This loan is given by banks or HFCs, or housing finance companies over and above your home loan amount. Funds from this loan can be utilised for multiple purposes such as home renovation, funding of child’s higher education, business expansion, wedding expenses or any other personal requirement. With a rate of interest usually starting from 6.90 % per annum onwards, the offered loan amount can go up to Rs. 2 crores, while the loan tenure can be extended up to 15 years or till the remaining tenure of the existing home loan. With lower interest rates, higher tenure and tax benefits, this loan type outscore other loan options such as personal loans and gold loans.

Loan against property (LAP)

LAP or loan against property is a kind of mortgage loan facility disbursed against your residential plots, commercial or industrial property. As it is secured in nature, hence its interest rate is slightly lower, usually starting from 8.20 % per annum onwards, while the sanctioned loan amount usually ranges between 2 lakh and 10 crores. The loan tenure for LAP (loan against property) can go up to 20 years. This loan type is worth considering if your fund requirement is huge and you hold no other source from where you can borrow.

Loan against fixed deposit

A loan against a fixed deposit helps you to get access to funds at a lower interest rate. The interest rate usually ranges between 1% and 2% above the fixed deposit rate, and the offered loan facility can go up to 95% of your FD value. With minimal documentation, the loan gets processed in less than a day, while the loan tenure cannot be extended beyond the FD’s tenure.

Some people prefer to withdraw the fixed deposit amount prematurely instead of taking a loan against it. In a few instances, it may be suitable if you require a sizable amount that you will not be able to repay over time. However, if you need an amount for a short time period that you will be able to repay, then it is preferable to opt for a loan against a fixed deposit.

Loan against securities

Your securities like Demat shares, bonds, mutual fund units help compound your money with time. However, they may come to your rescue as well in case of financial emergencies. Instead of selling away the securities in haste, you can use loans against securities to avail timely finance. The limit of financial assistance depends upon the securities that you have pledged. The interest rate of loans against securities ranges anywhere between 7.35 % and 18 % p.a., while you can get a loan worth up to 85% of the value of securities pledged.

Gold loan

If you own gold, then a viable loan option is a gold loan that you can consider during emergencies, as it comes with minimal paperwork, lenient eligibility criteria and speedy disbursal. With an interest rate ranging between 8.50 % and 29% per annum and a tenure ranging between 7 days and 3 years, a gold loan sanctions an amount that can go up to Rs. 10 crores. Furthermore, it usually includes up to 2% processing fees and the disbursal of the loan amount is solely based on the purity of the gold. However, remember RBI has capped the LTV ratio for a gold loan at 75 percent of gold pawned. As lenders keep the margin amount, you do not receive the entire gold value as a loan.

Loan against PPF

The major benefit of a loan against PPF is that you can borrow the required amount without closing your PPF with minimum documentation. A loan can be taken from 3rd FY up to 6th FY to the extent of 25 percent of the amount deposited at the end of the 2nd year immediately preceding the year in which the loan is applied. Repayment of the loan can be made in a lump sum or monthly instalments within 3 years from the day the personal loan is sanctioned. The interest rate charged is at the rate of 2 percent p.a. over & above the applicable PPF interest rate of the principal. However, on failure to repay the loan within 3 years tenure, the interest on the outstanding amount is charged at 6 percent per annum over and above the applicable PPF interest rate.

Bottom line

Tough financial times tend to cause a lot of stress, and because of it, we may not study all the available choices. It can result in rash financial decisions or taking of uninformed choices, which could be highly detrimental to future finances. For instance, when you are in immediate or urgent monetary requirement, then the simplest option may appear to be a personal loan. It is true to a great extent. However, you must consider that there are numerous alternatives as well, which can come across to be better than personal loans. Personal loans in India usually carry a higher rate of interest than regular loans, and banks even evaluate your whole financial profile before extending you with one. Thus, it may be a worthwhile choice to view if an alternative form of the credit option works better. The above-given options are top-up home loan, loan against property, loan against fixed deposit, gold loan, loan against securities and loan against PPF. Do ensure to go through these loan options, besides a personal loan, for making a better decision.

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