What are the Alternatives Available for a Personal Loan?

Personal loans are an excellent source of instant money, especially in times of emergency. The approval process is quick. There is not much documentation, and you get your loan within 72 hours in almost all cases. However, you have to meet specific eligibility criteria.

• You should have a stable income from a regular source
• Your credit score should be above 700
• You should have the repaying capacity by satisfying the take-home pay norms of the bank

If you satisfy these eligibility criteria, it is easy to get a Personal Loan. However, the personal loan interest rates in India are high. Banks have different interest rates for different categories of borrowers. It depends on which category you belong. Therefore, the Personal Loan option is not always the best option to get finance. There are other alternatives. Let us look at some of them.

Characteristics of a Personal Loan

The primary attraction for taking a Personal Loan is that you do not have to provide any collateral. These are unsecured loans. It is also the prime reason why Personal Loan interest rates are high.

The Alternatives to a Personal Loan

· Loan against property

The Loan Against Property is a secured personal loan where the bank sanctions a limit up to 50% to 90% of the value of the property subject to satisfying income and take-home pay norms. You have to provide collateral in the form of property (commercial or residential). Nowadays, banks accept self-occupied, vacant, and even rented properties as collateral. The rates of interest on the Loan Against Property are lower than the unsecured Personal Loan interest rates. You can avail a higher amount for a longer tenure. It makes it the ideal alternative to cater to significant expenses like marriage, higher education, and so on.

Loan Against Fixed Deposits

You are in need of money to cater to some urgent requirements. It is a temporary need. Under such circumstances, you can avail a loan against your fixed deposit receipts from your bank. All banks give loans up to 90% of the value of the fixed deposit receipts you hold with them. The rates of interest are also nowhere as high as the Personal Loans. In fact, you pay 1% more interest than what the bank pays you on the fixed deposit receipt. Banks have facilities where they grant overdraft facilities against fixed deposit receipts. You get a limit equal to 90% of the value of the receipts. The advantage is that you pay interest only on the amount you use from the overdraft account.

Loan Against Gold Ornaments

Gold ornaments can help you in an emergency. Banks grant Personal Loans against gold ornaments subject to the value of the gold (usually it is about 1,700 to 2,000 per gram of gold). It is one of the easiest ways to obtain a loan. The disbursement of the Gold Loan does not take more than half an hour. The rates of interest on the gold loan are also low as compared to the unsecured Personal Loans. The banks in the rural areas provide these loans at the rates applicable to agricultural loans.

Loans Against LIC policies and NSCs/KVPs

You can also obtain loans against your LIC policies. Banks provide loans up to 90% of the surrender value of your LIC policies to meet your urgent requirements. You have to assign the policies in the bank’s favour. Similarly, you can avail loan against your National Savings Certificates and Kisan Vikas Patras. These are some of your savings instruments. In case of an emergency, you can pledge these securities with the bank and obtain up to 75% of the value of these securities. Banks mark their lien on these securities at the respective issuing Post Offices.

Loans Against Your Public Provident Fund Deposits

The Public Provident Fund deposit is an excellent savings instrument. However, this deposit can come to your aid during a financial emergency. You can take a loan up to a certain fixed proportion on your PPF deposits. However, you should approach the bank where you maintain this deposit.

We have seen five simple alternatives to personal loans. The highlights of these alternatives are as follows.

• The loan approval process (except the loan against property) is speedy.
• The rates of interest on all these loans are much lower than the Personal Loan interest rates in India.
• Other than the loan against property, these are short-term
• Except for the Loan Against Property, the banks do not refer to the credit bureaus to check out your credit history when processing these loans.