Emergency cash requirements can come at any time and one way to meet this sudden demand can be to explore options for secured loans. Secured loans have less credit risk as the lender always has the option of selling the securities as pledged collateral, in case of default. Therefore, they use a more relaxed approach to the credit score of the applicant while considering the loan application. Generally, secured loans are available with a lower interest rate than the non-secured loan option, thus, making it an attractive option for loan seekers. Here, we list down some secured loan options and try to understand their features and requirements
loan against property
a loan against property Available on mortgage of any residential, industrial or commercial property. If you are looking for a loan for a long term, then using LAP can be a good option for you. The repayment period in LAP is up to 15 years, with some lenders also offering longer tenures up to 20 years. The loan amount can be between 50 to 70 percent of the current property value
LAP is a suitable option for loan buyers who are looking for a larger amount for a longer tenure. However, it may not be suitable for people looking for quick funds as LAP approval can take up to 2-3 weeks.
loan against securities
In case of cash crunch, you can also take a loan by pledging your market investments like bonds, shares, ETFs, mutual funds, NSCs, life insurance policies, KVPs etc. One advantage of using this option of secured loans is that during the time your investments are collateralized, you will continue to receive interest, dividends, bonuses and other benefits. The loan amount sanctioned depends on the valuation of your investment instruments and is subject to the Loan to Value (LTV) ratio as decided by RBI. Loan against securities comes in the form of an overdraft facility with a pre-determined loan limit. It also offers a flexible repayment option that allows borrowers to repay the principal amount as per their cash flow during the overdraft tenure. However, they have to pay the interest amount monthly without any default.
Meanwhile, if the value of the collateralized securities drops to a level affecting the LTV ratio, borrowers must 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 an ongoing home loan and has a good repayment track. One of the main factors that plays a vital role in deciding the loan amount, in this case, is the LTV ratio. The total home loan amount outstanding after the top loan should be within the LTV ratio of the loan when it was first issued. For example, if the LTV ratio was 70 per cent at the inception of the loan, then the principal amount outstanding including the head after top-up loan approval cannot exceed this limit of 70 per cent. Also, the top-up loan repayment period cannot exceed the remaining tenure of the home loan. Generally, 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 fastest disbursement time and can be sanctioned within a few hours of filing the loan application. Gold loans come with a repayment tenure of up to 3 years but some lenders also offer longer tenures of 4 to 5 years. The loan amount sanctioned is usually up to 75 per cent of the value of the gold which should be of minimum 18 carat purity.
Gold loan comes with a flexible repayment option that allows borrowers to settle the interest amount first and the principal amount for the subsequent repayment period.
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