Emergency cash requirements can come up at any time and one way to meet this sudden demand can be to explore the options of secured loans. Secured loans have a low credit risk as the lender always has the option to sell off the pledged collateral, securities in case of default. So, they tend to use a more relaxed approach to the applicant’s credit scores while considering the loan application. Generally, secured loans are available with a lower interest rate when compared to a non-secured loan option, thus, making it an attractive option for people seeking loans. Here, we list some of the secured loan options and try to understand their features and requirements
Loan Against property
A loan against property is available against the pledge of any residential, industrial, or commercial property. If you are looking for a loan for a longer duration of time, using LAP could be a good option for you. The repayment tenure in LAP is up to 15 years with some lenders also offering a longer tenure of up to 20 years. The loan amount can range between 50 to 70 per cent of the current property value
The LAP is a suitable option for loan buyers who are looking for a bigger amount for a longer duration. However, it may not be suitable for people looking for quick funds as LAP approvals can take up to 2-3 weeks.
Loan Against Securities
In case of a cash crunch, you can also borrow a loan by pledging your markets investment such as s bonds, shares, ETFs, mutual funds, NSC, life insurance policies, KVPs, etc. One advantage of using this option of secured loan is that during the time when your investments are collateral, you will continue to get interested, dividends, bonuses, and other benefits. The amount of sanctioned loan depends upon the assessment of your investment tools and is subjected to the loan to value (LTV) ratio decided by RBI. Loans against securities come in form of an overdraft facility with a pre-determined credit limit. It also offers a flexible repayment option that allows the borrowers to return the principal amount according to their cash flow during the overdraft tenure. However, they will have to pay the interest amount monthly without default.
Meanwhile, in case the value of collateral securities fall to a level that affects the LTV ratio, the borrowers will have to meet the LTV ratio by either depositing funds or pledging more securities to the lender.
Top-Up Loan
Top Up Loan can only be taken by a person who already has a running home loan and enjoys a good repayment track. One main factor that plays a key role in deciding the loan amount, in this case, is the LTV ratio. The total home loan amount outstanding after the top loan must be within the LTV ratio of the loan when it was first issued. For example, if the LTV ratio at the start of the loan was 70 per cent, then after the top-up loan approval the outstanding principal amount including the top can’t exceed this cap of 70 per cent. Further, the top-up loan repayment tenure cannot exceed the residual tenure of the home loan. Generally, the approval of a top-up loan can take up to 1 to 2 weeks but some lenders also offer a pre-approved facility.
Gold Loan
Gold Loan is another option of secured loan to meet your sudden cash requirement. It comes with the quickest disbursal time and can be sanctioned within a few hours of loan application filing. Gold loans come with a repayment tenure of up to 3 years but some lenders also offer longer tenure of 4 to 5 years. The approved loan amount is generally up to 75 per cent of the gold value which should be of a minimum purity of 18 carats.
Gold loans come with a flexible repayment option that allows borrowers to settle the interest amount first and the principal amount towards the later of the repayment tenure.
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