Loan against Financial Assets
Life is uncertain and sometimes an unexpected expense can leave you strapped for cash, or scrambling to generate funds. It is advised by most financial experts that one should always have an emergency fund to fall back on in case of a financial crisis. However, there are times when the emergency fund is not enough or one emergency is followed by another.
Whatever the reason for cash urgency, you need to find cash and fast. Your resource for cash depends on whether you need to raise funds in a few weeks or a few days. Here are the financial assets you can fall back on to fund an emergency without depending on personal loans.
Loan amount ranges between Rs 1,000 to Rs 25 Lakhs. Maximum loan is typically 75% of market value of gold. Interest rate starts from 10% to 22%, Maximum tenure for this loan is upto 3 years. Processing fee up to 2% of loan amount. Applicant should be 21-75 years of age. Gold purity should be 18-22 carat. Loan can also be borrowed against gold jewellery and gold coins.
2. Fixed Deposits (FD)
If you are looking out to avail a loan at a cheaper rate of interest compared to personal loan then you can borrow loan against FD. Note that if you take the loan against FD then also your deposit continues to earn interest on it. The amount of loan varies from bank to bank and on the deposited amount. Banks generally allow 70 to 90 per cent of the deposited amount. The interest rate charged minimum 2 per cent above deposit rate. The loan term does not exceed the FD term. Usually, there is no processing fee or prepayment charge.
In order to borrow a loan against FD, the person should be above 21 years of age and have a fixed deposit account in the bank. This facility is not available if the deposit is in the name of a minor.
3. National Savings Certificates (NSC)
National Savings Certificates (NSC) holders can avail loans against their NSCs for multiple purposes. An individual applying for a loan should be at least 18 years old. Since NSCs can be purchased on behalf of minors, most banks enforce this age policy. An individual applying for the loan should prove that they are the owner of the NSCs. The certificates should be in the name of the person wishing to borrow the loan.
Banks can offer loans up to 85-90% of the NSC value. The loan amount changes with changes in tenure of certificates. Most banks charge an interest ranging from base rate + 4% to base rate + 7%. The rate varies from bank to bank.
4. Public Provident Fund (PPF)
If you have a PPF account then you are eligible to take a loan from the third financial year up to the sixth financial year of opening the account. A loan against PPF is charged 2 per cent more than the interest earned on the PPF account balance. The loan has to be repaid within 36 months failing which; you have to pay 6 per cent more interest. A loan of 25% of the balance at the end of the second financial year proceeding the year, in which the loan was applied, is allowed.
You can borrow a loan against your car as well. Typically, one can borrow 50-150% of the value of their car at an interest rate of 11 to 16 per cent. The loan repayment period can be anywhere from one to seven years. Most lenders charge up to 3 per cent as processing fee. Aside from processing fee, there are internal charges like documentation charges, collateral charges and stamp duty etc. Car should not be than 10 year old to be eligible for this type of loan.
6. Rent Receivables
The Loan amount will be 70-90% of market value of property. Interest rate ranges from 10-13%. The tenure for the loan against rent receivable will be between 10 to 15 years. Processing fee will be charged up to 2% of the loan amount. The condition for availing this loan is Residential or commercial property should be let out and earning rent, should be built as per the plan approved by local government authorities, and should have confirmed rental or lease agreement.
7. Insurance Policies
An individual holding an insurance policy can avail a loan worth 80-90% of the surrender value of traditional policies (endowment and moneyback). The interest charge on such loans ranges from 9 to 12 per cent. However, it also depends on the premiums you have paid. The loan tenure depends on the maturity of the policy. LIC does not charge any processing fee while banks charge a nominal amount of Rs 250 to 500.
Note that you can’t take a loan against term plan and ULIPs. In case the loan exceeds surrender value, the insurance policy can be terminated.
Loan against property are secured loans offered by banks and NBFCs using one or more properties owned by the borrower as the collateral. One can avail these loans for commercial property, residential property and Industrial property as a collateral. Maximum loan amount is upto 70% of the market value of the property. One can borrow Rs 1,00,000 to Rs 25 crore at an interest rate of 8.8 to 15%. One can typically borrow a loan for a period of up to 15 years.
Processing fee up to 2% is generally charged for such loans. Salaried people should have at least three years of work experience to avail loan against property, while self-employed individuals should have a business running for at least 3 years. Banks prefer a CIBIL score of over 700 for such loans.
9. Shares, Mutual funds, Bonds
One can borrow loan against shares, mutual funds and bonds. Loan up to Rs 20 lakh can be borrowed against such securities. There is no maximum limit for debt-funds. One can borrow 50% of market value (shares)/NAV (equity funds), 85% of market value for bonds, debt funds at an interest rate of 10 to 13 %. The term of the loan is 1 year can be renewed later. Processing fee will be charged up to 2%.
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