Need Money For Short Term? Try Secured Loans

Try Secured Loans

A friend of mine recently applied for a personal loan from a leading bank and was shocked to know that she would be paying almost 50% of the loan amount as interest, spread over a period of 5 years. The purpose of this personal loan was to settle some outstanding credit card dues. Agreed, the rate of interest on a personal loan (16-22% per annum) is lesser than that of a credit card (35-44% per annum). But is a personal loan the only way out? Nope.

She can go in for a secured loan. Owing to the fact that secured lendings such as loans against gold jewellery, overdraft against fixed deposits and stocks/mutual funds are sanctioned against a collateral, they are cheaper than personal loans. Overdraft against FDs attract an interest rate of 9-10% while against stocks/MFs is around 11-12.5%. And this is the main reason why more she should be more careful while choosing the mode of credit. Besides the rate of interest and repayment period, her key deciding factor should be the speed of disbursal and urgency of her need. Personal loan is not the right choice for her if she requires a loan for just a couple of months and that’s because a personal loan is given for a minimum tenure of 12 months. The processing time involved in loans against stocks/MFs is 3-5 working days, after completion of the documentation procedure. Hence secured loans are most desirable and should be her first choice.

Another viable option is loan against gold jewellery. Indians are known to be fond of investing in gold and this can be used to fund that short term need. It is one of the cheapest borrowing avenues available today. She can borrow upto Rs 10 lakh (Rs. 1 million) and 80% of the ornaments value, and needn’t specify the purpose, unless it is for speculative or anti-social activities. The repayment term usually ranges from 3-12 months. Some banks allow a choice between repaying the loan at maturity or via the EMI mode.

Secured loans constitute one method of reducing the interest burden and helping you avoice getting trapped by the debt net.

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Author: Austin Comments: 0 comments Date: 4 Apr 2008
Categories: Loan Tags: , , , , , ,
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