Emergency cash needs can arise at any time and one way to meet this sudden demand may be to explore secured loan options. Secured loans present a low credit risk, as the lender always has the option of selling the pledged collateral, the securities in the event of default. Thus, they tend to use a more relaxed approach to the applicant’s credit scores while considering the loan application. Typically, secured loans are available with a lower interest rate than an unsecured loan option, making it an attractive option for people looking for loans. Here we list some of the secured loan options and try to understand their features and requirements.
Loan against property
A home loan is available against the pledge of any residential, industrial or commercial real estate. If you are looking for a loan for a longer term, using LAP might be a good option for you. The repayment term in the LAP can be up to 15 years, with some lenders also offering a longer term of up to 20 years. The loan amount can vary between 50 and 70 percent of the current value of the property
LAP is a suitable option for loan buyers who are looking for a larger amount for a longer term. However, it may not be suitable for people looking for quick funds, as LAP approvals can take up to 2-3 weeks.
In case of cash shortage, you can also borrow a loan by pledging your investments in markets such as bonds, stocks, ETFs, mutual funds, NSCs, life insurance policies, KVPs, etc. One advantage of using this secured loan option is that during the time that your investments are secured, you will continue to earn interest, dividends, bonuses, and other benefits. The loan amount sanctioned depends on the evaluation of your investment tools and is subject to the Loan to Value (LTV) ratio decided by RBI. Securities loans are in the form of an overdraft facility with a predetermined credit limit. It also offers a flexible repayment option which allows borrowers to repay the principal amount based on their cash flow during the term of the overdraft. However, they will have to pay the interest amount monthly without default.
Meanwhile, if the value of the secured securities falls to a level that affects the LTV ratio, borrowers will have to meet the LTV ratio by depositing funds or promising more securities to the lender.
The complementary loan can only be taken out by a person who already has a mortgage in progress and who has a good repayment track. A main factor that plays a key role in choosing the loan amount, in this case, is the LTV ratio. The total mortgage amount outstanding after the first loan should be included in the LTV ratio of the loan when it was first issued. For example, if the LTV ratio at the start of the loan was 70%, then after approval of the top-up loan, the principal amount outstanding, including the cap, cannot exceed that 70% cap. In addition, the repayment term of the complementary loan cannot exceed the residual term of the mortgage loan. Typically, approval for a top-up loan can take up to 1 to 2 weeks, but some lenders also offer a pre-approved facility.
Gold loan is another secured loan option to meet your sudden cash flow needs. It comes with the fastest disbursement period and can be sanctioned a few hours after the loan application is submitted. Gold loans come with a repayment term of up to 3 years, but some lenders also offer a longer repayment term of 4 to 5 years. The loan amount approved is usually up to 75 percent of the value of the gold which must be of a minimum purity of 18 karats.
Gold loans come with a flexible repayment option that allows borrowers to pay the interest amount first and the principal amount towards the later of the repayment term.
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