Loan against securities or Personal Loans: What should you opt for?

Whenever an unexpected expense or medical emergency comes up, loans from banks and other financial institutions come to our rescue. You never know what surprises and affliction life has in store for you. We may not be prepared to face financial demands at all times. Luckily, loans come in various types. Whether you have an investment to mortgage or not, there are loan options for you. A study of loans against securities and personal loans is primarily centred around the fact that you have an asset that you can mortgage or you don’t.

Loan Against Securities (LAS)

LAS is a secured loan. You can obtain a loan against security by mortgaging your shares, stocks, bonds, fixed maturity plans, mutual funds, insurance policies and units etc., as collateral against the loan amount. Your applicable loan amount would depend upon the sum of the cash value of all the securities you have pledged with your financial institution. Let us check some key features of loan against securities.

• As it is a secured loan, with checks to be made, the loan availability process is a bit longer.
• As a borrower, your credit score is not that major a factor for being eligible for this loan.
• Documentation is a lot more comprehensive as eligibility for the loan is based on the value of the security.
• You can avail of loan value between 50% to 90% of the securities you have pledged as collateral.
• The interest rate is low as it is a secured and low-risk credit for the lender.
• A pre-payment penalty is also not required.
• It is given as an overdraft facility. Withdrawal, tenure and repayment period is quite flexible.
• You are also provided with online banking and ATM facilities on the overdraft system.
• It can be used to fulfil requirements such as:
• Medical emergencies
• Education
• Travel or vacation

Business or any other use

Personal Loan

Personal loans are unsecured loans. You are not required to provide collateral to avail such loans. Personal loans will be sanctioned based on your employment history, income level, profession, credit history and repayment capacity. If you have a good credit score, you are eligible for a personal loan at a lower interest rate offered by various financial institutions. Let us check some key features of a personal loan.

• Documentation is minimal, with identity proof, address proof and income proof to be provided as key documents.
• Disbursal of the loan is quite fast. If you try availing of a pre-approved loan offer, the time of disbursal of the loan becomes faster. 
• The loan amount is much flexible, with lenders offering a wide range from Rs. 20,000 to Rs. 40 lakhs.
• The tenure of the loan is flexible as well, from 12 months to 60 months.
• A personal loan can be used to consolidate all the present debts by paying off all the high-interest debts.
• These unsecured loans may have other charges such as processing fees, insurance charges, service fees, etc.
• Known as foreclosure charges, a pre-payment penalty is applicable in a personal loan.
• It can be used to fund various personal purposes such as buying consumer durables, weddings or any other big event, consolidating the existing debt, travel, medical needs, home renovation etc.

Deciding factors between Loan Against Securities and Personal Loan
 

• In a loan against securities, you cannot sell your securities as these are pledged to the lender. However, a personal loan has no such conditions. But if the loan required is high, then Loan Against Securities is the better option.
• A loan against securities is cheaper when compared to interest rates on a personal loan.
• In case of emergencies, if you have securities, it is advisable to take a loan against your investments rather than liquidating them. 

The features and differences between a loan against securities and a personal loan clearly define their suitability. If you have an investment that you can pledge, LAS offers a cheaper finance option. However, if you plan to trade your investments regularly, personal loans offer you independence. And if it is a personal loan you are planning for, IDFC FIRST Bank offers attractive personal loan interest rates with highly flexible repayment terms.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.