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When you’re in a situation where you could use a little extra money, breaking into your savings may not be the best option. And while you can always get financial support from your family, there’s a better solution that won’t let money come in between you and your loved ones.
Personal loans. This simple financial instrument has become a bridge to the instant money needs of millions of Indians.
A personal loan is the money you borrow from any bank or NBFC to cover your financial requirements. Usually, these loans are collateral-free loans. This means you don’t need to provide any assets against the money you borrow.
Whether an emergency comes out of nowhere or your family plans a last-minute vacation, you will never catch yourself wishing you had instant access to money.
Loan against securities meaning is personal loan where you need to provide assets like gold, jewellery, shares, insurance policies, mutual funds, etc. against the money you borrow.
One of the biggest advantages of choosing this loan is that the interest charged is comparatively lower. But that’s not all. You also get to repay your loan with a longer personal loan repayment tenure. This is because the provided asset reduces the risk associated with lending the money.
The security you need to provide against the money you borrow can be different for different lenders.
While both personal loans and loans against securities can help you meet your financial requirements, they have different functionalities and serve different purposes. Understanding this difference can help you choose a better loan option.
Characteristic
Personal Loan
Loan Against Securities
Collateral
Depending on the lender, you may or may not have to provide collateral against the money you borrow.
You need to provide any asset like gold, jewellery, shares, etc. as collateral, against the money you borrow. The collateral required can be different for different lenders.
Interest Rate
The interest rate you’re charged on your personal loan depends on many factors like your credit score, monthly income, and repayment history. In India, it can range anything between 8.75% to 49.5%.
Usually, the loan against securities interest rate is lower as compared to unsecured personal loans because there’s lesser risk. In India, it can range anything between 8.75% to 15%.
Repayment Period
The repayment tenure is shorter as compared to loan against securities. It can range anything between 12 months to 60 months.
The repayment period for loan against securities is longer and can even go up to 15 years.
Documents Required
Typically, you require fewer documents to complete your personal loan application. On platforms like Zype, you can even complete your application without any documentation or paperwork.
Getting a loan against securities usually requires more extensive documentation and paperwork about the asset you’re providing against the loan.
Whether you’re apply for a personal loan or a loan against securities, you need to meet your lender’s eligibility criteria to get approved for a loan.
While different lenders have a different eligibility criterion, these are some common requirements of a lender.
18 years or above
A valid PAN and Aadhaar card
A stable income
Required Asset
Good credit score
A stable income and good credit score
When you take a loan from any financial institution, you need to pay it back with interest.
The interest you’re charged on your loans depends on various factors like your credit score, repayment history, monthly income, etc.
And while different lenders charge different interest rates on loans, there’s a significant difference between personal loans and loan against securities.
The interest charged on loans is comparatively higher.
The loan against securities interest rate is comparatively lower because the risk associated with lending is low.
In India, the interest can range anything between 8.75% to 49.5%, depending on the lender.
In India, the interest can range anything between 8.75% to 15.5%, depending on the type of secured loan.
What’s more important than getting a loan approval is whether the loan amount meets your requirements and that you’re able to pay it back comfortably.
Here’s why it can be a deciding factor between secured and unsecured loans:
Parameter
Loan Amount
The loan amount you can get approved for depends on various factors like your credit score, repayment history, monthly income and even the risk capacity of the lender.
While this also depends on your credit score, repayment and monthly income, the value of your assets provided also plays an important role in determining the approved loan amount.
Repayment Terms
The repayment tenure of personal loans is usually shorter than loan against securities. This can range anything from 3 months to 5 years, depending on the lender.
Loans against securities have longer repayment tenure and can even range up to 20 years.
Another very important factor to consider when choosing between a personal loan and loan against securities is the flexibility of usage.
Usually, personal loans are unsecured loans. This means you don’t have to provide any asset against the money you borrow. Because of this, you don’t have any restrictions on the end use of it. You can use the money anywhere you like, no questions asked!
On the other hand, when taking a loan against security, the lender can inquire about the purpose of the loan during the application process.
Secured and Unsecured personal loans carry a very different level of risk for both – the lenders and borrowers.
In a secured loan, the lender carries a lower risk as compared to an unsecured personal loan. This is because the borrower needs to provide collateral against the loan amount. On the other hand, the borrower is at risk of losing their collateral in the case of non-repayment.
In unsecured loans, there’s no requirement for any kind of collateral. Lenders provide a loan solely based on the credit profile of the borrower. Because of this there’s a higher interest charged on the loans.
Loan Against Security
Application Process
When applying for an unsecured personal loan, you need to provide the required information like your name, email address, employment details, PAN, etc. to get an approved offer.
When applying for a loan against security, you need to provide your collateral details along with the other documents.
Disbursement Process
After you’re approved for a loan, you will have to complete a KYC process to unlock your limit. You will then directly receive the loan into your registered bank account.
The lender may ask to verify the ownership of your collateral before disbursing the loan to you.
Whether you need urgent cash during an emergency or are specifically looking for a two-wheeler, loans have made every financial requirement achievable.
While you may not have to pay a high interest on loan against security, an unsecured loan comes with no restrictions and faster processing.
Having a clear understanding of such different kinds of loans available in the market can help you choose the right lender and make more sound financial decisions.
If you want to take a loan without providing any collateral, then an unsecured personal loan is the right option for you. On the other hand, if you want a loan with lower interest rates and longer repayment tenure, then a loan against security is the better choice.
The loan tenure of loans against securities is comparatively lower than personal loans.
If you’re taking an unsecured personal loan, then there’s no restriction on the end usage of the loan. However, there could be a specific use case for loan against securities.
If you default on repayment for personal loan, you may face negative consequences like late penalty fees, decrease in credit score and collection attempts from recovery agents. On the other hand, if you default on repayment for loan against security, the lender has the right to seize your collateral.
Lenders evaluate creditworthiness by going through your credit score, repayment history, monthly income, etc. to give you a loan offer. In the case of loan against securities, the lender will also consider the value of your collateral.
The facility to top up your existing personal loan or loan against securities depends on the lender.
While different lenders require different documents to give you a personal loan you will need your PAN card, Aadhaar card, income proof, KYC documents, etc. In the case of loan against securities, make sure you have your collateral documents ready.
Yes, you can. This can increase your chances of approval. However, make sure you enquire with the lender that you can apply for loan with a co-applicant.
Different lenders have different processing times. However, it takes less time to approve a personal loan as compared to a loan against security.
The loan amount for a loan against securities depends on the type of secured loan. And in some cases, it can also be higher as compared to personal loans. However, the loan amount you can avail in India can range anything between Rs. 1000 to Rs. 50 lakhs.