The secured loan option allows borrowers to meet their financial needs without having to liquidate their assets to meet sudden cash needs. These options are without credit risk for borrowers as they have the option of selling the pledged securities in the event of default. The lower credit risk associated with these loan options makes them a safer choice compared to credit cards or personal loans which also charge high interest charges, imposing an additional financial burden.
Here are four secured loan options you can turn to in the event of sudden monetary options.
If you are someone who has invested in multiple investment tools in the market such as bonds, stocks, ETFs, mutual funds, NSCs, life insurance policies, KVPs, etc. ., you can use them to get a cash flow crisis loan. One of the benefits of using your securities for a loan is that while they will be pledged against your loan during the term of office, you will continue to earn interest, dividends, bonuses, etc. So instead of liquidating your securities needing cash, you can use them to get security, this way your investment can continue to grow.
The loan amount depends on your securities on the lender’s appreciation of the value of these market investment tools and is subject to the LTV (Loan to Value) ratio assigned by the RBI for the securities. This loan comes in the form of an overdraft facility with a predetermined credit limit. The borrower has the option of withdrawing the entire amount sanctioned or only part of it, depending on their needs.
While the borrower has to pay the loan interest amount each month, he is free to repay the principal amount based on his cash flow until the term of the overdraft.
However, if the market value of the pledged securities drops to a point where it affects the LTV ratio, borrowers will have to meet the LTV ratio requirements by pledging more securities or depositing funds with the lender.
If you are going through a cash flow crisis, a gold loan could be a good option for you to lend quickly. These types of loans are the fastest to be sanctioned and are usually settled the same day the application is received. You can use any unused gold jewelry or gold coins (minimum purity of 18 karats) in the locker as collateral for your loan. The repayment term for gold loans is usually up to 3 years, with some lenders also offering a longer term of 4 to 5 years. Banks and financial institutions generally offer an amount of 75 percent of the current market value of the pledged gold.
One of the main advantages of a gold loan is the flexible repayment option offered by various lenders apart from the usual EMI option, many lenders allow to repay the interest amount in advance and to settle. the principal amount towards the end of the loan term. These flexible repayment options can be particularly beneficial for those who need funds, but lack consistent cash flow to repay through IMEs.
Loan against property
If you are looking for a loan for a longer period, you can use your properties as collateral for your loan. Loans against properties are issued against the pledge of residential, commercial and industrial properties, and the amount can vary between 50 and 70 percent of the current market value. The repayment period can be up to 15, with some lenders also offering terms of up to 20 years.
While this is a great option for people looking for larger loans, the LAP may not be suitable for people looking for quick funds as the process can take 2-3 weeks.
You can only benefit from a complementary loan if you have an outstanding mortgage with a good repayment history. The main factor here is your LTV ratio. The total loan amount outstanding after the supplemental loan must be within the same LTV range that the loan was issued. So, for example, if you have been approved for a loan of 80% of the value of your property, the total principal outstanding, including the top-up loan, cannot exceed this 80% limit.
In addition, the collateral for a complementary home loan cannot exceed the residual term of the original home loan, with most lenders capping it at 15 years. While the usual disbursement time for these loans is typically 1 to 2 weeks, some lenders have also started offering pre-approved top-up home loans to existing home loan borrowers, with same day disbursement.
Read all the latest news, breaking news and coronavirus news here