Loan against securities or personal loan- What is best?

When you experience an instant financial need, then the banks provide you with loans to come out of this situation. Different types of loans are used for different purposes.  All the loans are not used for the same purpose, or all of them do not bring the same benefits.  Before taking a loan, it is important to ensure the loan tenure, size, eligibility, repayment options, interest rate, etc.

If you have more than one loan offer, you have to compare them and choose what works best for you. If you are confused about choosing between a personal loan and a loan against securities, then this post will guide you. In this article, we tell you about both loan types so that you can make an informed decision.

What is a personal loan?

A personal loan is known as an unsecured loan, where you do not need to give collateral. Many banks provide you with a personal loan based on borrower income level, credit score, employment history, and repayment capacity.

You can easily take personal loans to meet different needs, like consolidating debts, wedding expenses, medical costs, etc.

What is a loan against securities?

The loan against securities refers to loans against shares, fixed deposits, insurance policies,  mutual funds, and other financial securities. While taking this type of loan, the borrower makes the investment by collateral against the loan that you want to raise. Here are the different types of loans available at loan against securities

• Loan against shares

You can deposit your demat shares against securities against the loan amount. It helps you to keep your investment in equities, and you may increase funds during financial emergencies.

• Loans against mutual funds

The mutual fund’s value units help you to determine the loan amount. It reaches up to 50% of market value and 70% of the total asset value of pledged mutual funds.

• Loan against the insurance

Some banks provide you with loans against insurance policies. It is not available against term insurance or unit-linked insurance policies.

Features of personal loan

• Income proof, like income tax returns or salary slips, is required to apply for a personal loan.
• This unsecured type of loan consists of charges like processing fees, services fees, and insurance charges.
• If you select pre-closure of loan, then the foreclosure charges are associated with it.
• The personal loan interest rate is higher than the loan against securities

Features of loan against securities

• A loan against securities is less expensive than personal loans
• As your investment belongs to you, you can benefit a lot from a loan against securities
• A loan against securities is the best option to fulfill your short-term fund needs.
• It works like an overdraft facility where you pay interest on a loan amount you withdraw over time

Conclusion

Both of the loan options are used to meet different needs. A loan against securities is the best option for some people who wants funds for a short time only.

On the other hand, a personal loan is the best option for people who want short-term but instant funds.