Pay EMIs and bills on time
Timely payments are essential to avoid penalties, protect your credit score and reduce stress. Set up reminders or automated payments to ensure you don’t miss due dates. Most banks offer features like automatic EMI deductions from your account, which can simplify this process. Sticking to your repayment schedule is crucial, as it minimises interest over time and brings you closer to financial freedom.
Loan against Fixed Deposit
Pros
Loans against fixed deposits (FDs) allow you to borrow up to 90% of the deposit amount. The interest rate is only 1-2% higher than the FD rate. This type of loan doesn’t affect your FD earnings. Hence, it’s an economical choice for short-term liquidity needs while keeping your investment intact.
Cons
The loan amount is limited to the size of your FD, so this option may not suffice for larger financial needs. Additionally, if you default, your FD will be foreclosed to recover the loan amount, which may disrupt your savings plan.
Loan against Property
Pros
Loans against property (LAP) can provide significant funding based on the value of your property. It is often available at lower interest rates than unsecured loans. This option suits long-term needs and larger expenses, as the repayment tenure can stretch up to 15 years. It provides manageable monthly payments.
Cons
Approval is generally slower due to extensive property valuation and verification processes. Additionally, if you default, you risk losing ownership of your property. This makes this a potentially high-stakes option for those with fluctuating income.
Loan against Gold
Pros
Gold loans are quick and straightforward, as the gold asset serves as collateral, reducing risk for lenders. They’re available with flexible tenure and competitive interest rates. It is an accessible option for those with gold assets who need quick cash without lengthy documentation.
Cons
Since the loan amount is based on gold’s market value, this option may not meet large financial needs. Moreover, if you fail to repay, the lender can auction your gold. This makes this option risky if the gold holds sentimental or investment value.
Loan on credit card
Pros
Cedit card loans or cash advances are convenient, as they don’t require additional documentation. Funds can be withdrawn directly from your card’s limit, making it an accessible option in emergencies. Interest rates can be lower than standard credit card purchases, depending on the card issuer.
Cons
These loans can carry high interest rates and fees, particularly for cash advances. Failure to repay on time leads to compounding interest. It is an expensive choice for prolonged borrowing needs and potentially impacting your credit score.
Loan against shares
Pros
Loans against shares allow you to leverage your investments in stocks without having to sell them. Interest rates are generally favourable, and you can keep benefiting from market gains on your shares while meeting your liquidity needs. This option works well for investors with diversified, stable portfolios.
Cons
Market volatility can affect the loan amount you can borrow, as lenders adjust the loan based on share values. If share values drop, the lender may require additional collateral or partial loan repayment. This option can be risky during market downturns and for investors without financial buffers.
Conclusion
Selecting the right loan alternative requires careful consideration of your financial needs. Evaluate available assets, interest rates and repayment capacity. Then, start by assessing the purpose of the loan, whether for a long-term need or short-term requirement. This will guide your choice between options like loans against property, gold or shares.
Consider which assets you can use as collateral, as each option offers different borrowing power and risks. Comparing interest rates and repayment terms across lenders helps you find a cost-effective solution that aligns with your financial stability.
Finally, evaluate your risk tolerance, as secured loans may involve the possibility of asset loss if repayments aren’t met. By balancing these factors, you can choose a loan alternative that best suits your financial needs while minimising risks.
