Personal loan alternatives

Tough financial situations tend to make us stressed out, and because of this, we might not study all available options. This could lead to rash financial decisions, which could have a detrimental impact on future finances.

For example, where you are in urgent need of money, then the easiest option might seem to be a personal loan. This is true to an extent. However, you should consider that there are several alternatives too. Personal loans carry higher interest rates than regular loans, and banks also evaluate your entire financial profile before extending you one. So it might be worthwhile to see if an alternative form of credit works better.

Here is a look at some available options:

Loan against fixed deposits

These are securitized loans as they are backed by the FDs that you have. This is one of the quickest options available; these loans are disbursed with minimum documentation. Banks are ready to offer loans of up to 85% of your available FDs. In addition, your FD continues to earn interest even during the tenure of the loan.

Gold loans

Remember old Bollywood movies where villagers use to mortgage their gold for money? That concept has now caught on in urban areas too. But unlike in films, in real life, you can borrow money from banks and NBFCs – which have far more transparent operations than the money lenders that Bollywood stereotypes. These loans provide immediate liquidity, without having to sell your jewellery. The loan amount depends on the purity and weight of your gold with lenders ready to offer up to 80% of the value of your gold as loan.

Loan against shares

Banks are also willing to lend against the shares of companies, but only those that are on their list of eligible securities and every bank has its own list of approved securities. The loan amount depends on the valuation of securities and ability to repay and service loans, but is generally a much smaller percentage of the asset as compared to other forms of loans.

Loans against insurance policies

These loans come at lower interest rates and their value depends on the value of your policies. These loans can usually be repaid anytime during the policy term and unpaid amount thereafter will be deducted from the insurance claim amount.

Loan against PPF

A PPF loan can only be taken for a tenure of two years. The biggest benefit is that this loan does not lead to the breaking of your PPF and the documentation requirements are very minimal.

There are other options too, such as loans against property (apartments or plots). However, these come with quite a long approval and disbursement period, so they won’t work for someone who is in urgent need of funds.

This article is not suggesting that you should not go for personal loans, just that it is a good idea to keep your eyes open to alternatives and take the best decision.


Disclaimer: Copyright Kotak Mahindra Bank Ltd.

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