Choosing between a personal loan and a loan against securities depends on your specific financial requirements and the terms and conditions of each loan.
Both personal loans and loans against securities have their advantages and disadvantages, and choosing between the two can be challenging. You have several options when it comes to borrowing money, including personal loans and loans against securities. However, a borrower often finds it difficult to choose the best financial option when in need.
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Let’s discuss the factors that one should consider before deciding whether to opt for a personal loan or a loan against securities.
What Is Personal Loan?
A personal loan is an unsecured loan that individuals can avail of without providing any collateral. These loans are typically approved based on the borrower’s creditworthiness, income, and repayment capacity. Personal loans are ideal for individuals who need funds for a short duration and do not want to pledge any asset as collateral. They can be used for various purposes such as medical emergencies, weddings, travel, education, etc.
What is Loan Against Securities?
A loan against securities is a secured loan that is availed by pledging securities such as stocks, mutual funds, bonds, etc., as collateral. These loans are approved based on the value of the securities pledged, and the borrower’s creditworthiness. Loan against securities is ideal for individuals who require a significant amount of money for a long duration. These loans are typically cheaper than personal loans, and the interest rates are lower as the lenders have the security of the pledged assets.
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Factors to Consider:
Credit Score
Your credit score plays a crucial role in determining the interest rate and the loan amount you can avail of. If you have a good credit score, you may be eligible for a lower interest rate on a personal loan. However, if your credit score is not up to the mark, you may have to pay a higher interest rate on a personal loan or may not be eligible for one at all. In such cases, a loan against securities can be a better option as the securities pledged serve as collateral.
Loan Amount
If you need a small amount of money for a short duration, a personal loan can be a better option as it is an unsecured loan, and the approval process is usually faster. However, if you require a significant amount of money for a more extended period, a loan against securities may be a better option as the interest rates are lower, and the loan amount can be higher.
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Interest Rate
The interest rate on a personal loan is generally higher than that of a loan against securities. However, if you have a good credit score, you may be able to negotiate a lower interest rate on a personal loan. In contrast, the interest rate on a loan against securities is usually linked to the market value of the securities pledged.
Factors to Consider:
Credit Score
Your credit score plays a crucial role in determining the interest rate and the loan amount you can avail of. If you have a good credit score, you may be eligible for a lower interest rate on a personal loan. However, if your credit score is not up to the mark, you may have to pay a higher interest rate on a personal loan or may not be eligible for one at all. In such cases, a loan against securities can be a better option as the securities pledged serve as collateral.
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Loan Amount
If you need a small amount of money for a short duration, a personal loan can be a better option as it is an unsecured loan, and the approval process is usually faster. However, if you require a significant amount of money for a more extended period, a loan against securities may be a better option as the interest rates are lower, and the loan amount can be higher.
Interest Rate
The interest rate on a personal loan is generally higher than that of a loan against securities. However, if you have a good credit score, you may be able to negotiate a lower interest rate on a personal loan. In contrast, the interest rate on a loan against securities is usually linked to the market value of the securities pledged.
Compiled by BankBazaar.com
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Note: Interest rate (with loan tenor >1 month) on Personal Loan and loan against securities for all listed (BSE) Public & Pvt Banks considered for data compilation. Banks for which data is not adequately available on their website are not considered. Data collected from respective institution’s website as on 04 Apr 2023. Banks are listed in ascending order on the basis of personal loan interest rate in their respective category, i.e. bank offering lowest interest rate on personal loan is placed at top and highest at the
bottom. Interest rate mentioned in the table is indicative and it may vary depending on various factors
and bank’s T&C. Eligible underlying security in loan against securities (LAS) may change from bank to bank. Usually banks allow NSC/ KVP/ RBI Relief Bond/ Mutual Funds as security for loan.
