Personal loans versus Secured loans
The loans are order of the day in todays world. The prices are soaring everywhere, so are the ambitions of todays generation which is possible if you start early by investing through loans. So in this article,I will explain the various loans options with their features in accordance with your financial needs. The interest rates, period of loan and amount of loan amount allowed under different loan options, in general, will be dealt with in detail.
Loans is the money we borrow from the individual or some institute with promise to return back in some predefined way with some terms and conditions. Loans are always required at one stage of life. Some takes loan for their dream projects, some for their basic needs like home or car etc and some needs money in emergency. Loan looks quiet a easy term but little less awareness about them may cost you quiet a lot. So lets start with it in detail. Loans are of two types.
Unsecured or Personal These loans are for personal needs only and does not require any security as assurance to avail loan. Since there is no assurance, risk factor is high and lending institution therefore charges higher interest rates from 15% to 25% for Perosnal loan. The period of Personal loans can be maximum upto 5 years.The purpose of taking this loan does not matter to the bank.However, proof of income in form of Form16 or income tax returns is required so that bank gets assured about the repaying capacity of yours. More reliable you are in eyes of bank, lesser will be interest rate chared for it.
Secured These loans are sanctioned against security and requires some materialistic security in your possesion to be given in custody of bank to avail loan. Your own regular income does not play much role here, as risk level is reduced because of security. The interest rate is less in case of Secured loans.The periods of loan and loan amount and interest rate varies as per the nature of security given to the bank.
So the Secured loans may be classied as the security against which loan is sanctioned.
1) Gold JewelleryFor taking loan against Gold Jewellery, you just need to go to the lending agency with jewellery and relevant bills if available. Banks will evaluate your jewellery as per their terms and current market value. The value mentioned in purchase bills shall not be of use. Loan is allowed maximum upto 60% of value of Gold jewellery. The interest rate for loan against Gold jewellery is in range of 12% to 15%.The period of loan shall be upto one year generally.
2) Fixed DepositsLoan against fixed deposit is maximum allowed upto 90% upto the amount of fixed deposit. Loan can be availed in form of overdraft in which higher interest rate is charged only for the amount withdrawn from overdraft account. But still EMI option is also available.The interest rate for loan against fixed deposit charged is 1 or 2% higher than fixed deposit's interest .The Loan against tax saving fixed deposit can't be available.Some banks allows loan against fixed deposit just a day after FD is made and some banks allows after some period has elapsed after making of FD.
3) PropertyLoan can be availed by mortgaging the property. But the Loan amount allowed is max upto only 60% of value of your property and regular income proof is also required as the property rates keeps varying and also if you default in paying EMI, its quiet difficult for bank to forcibly vacate your home and sell. Tne interest rate charged shall be in range of 11.75% to 17%. The process for availing loan is lenghty so not good in case cash requirements are less. The period of loan can be maximum upto 15 years.
3) Home LoanThe Home loan is one of the cheapest loan and tax deduction is also allowed max upto 1.50 lacs per financial year.Reason is purpose of loan is monitored by the bank while in previous loan options discussed, purpose of loan doesn't matter to the bank. Further, the security in this case is the conditional ownership of home to be purchased in custody of bank until whole EMIs are paid back to the bank. The period of loan repayment is quiet larger than other options and may extend upto 20 to 25 years.
4) Mutual funds, Shares and insurance policiesThe interest rates for loan availed against mutual funds and shares is in range of 12.5% to 14%.but sanctioned loan amount is quiet less against mutual funds and shares as market is very volatile.
5) Public Provident FundThe loan against PPF is allowed from 3rd financial year upto end of 5th financail year from the year of starting PPF account subject to some terms and conditions. The interest rates charged in this case are almost same as in case of loan against fixed deposits.
Your financial requirement, repayment capability and period of loan are the deciding factors for choosing any loan options available in the market.
This is a good resource that is very educative. Secured loan is better than personal loan. It is because with personal loan,the interest charged are on the high side of between 15% and 30% while secured loan interest rate is very low which is 9% and 12%. The term of the loans also defered from this two loans.