At times we have more than one options to borrow funds, but we are confused making a decision. For instance, often people keep wondering whether to borrow a personal loan or go for a loan against securities. This could be a difficult decision to make.
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Personal loans and loans against securities are different types of loans offered by banks and financial institutions. Here are some differences between the two:
Purpose: Personal loans are unsecured loans that can be used for any personal expenses like wedding expenses, home renovation, medical emergencies, or any other personal requirement. Loan against securities, on the other hand, is a secured loan that is provided against a collateral, which can be in the form of securities like shares, bonds, mutual funds, etc.
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Interest rates: Personal loans usually have higher interest rates as they are unsecured loans, and the lender is taking a higher risk by lending money without any collateral. A loan against securities, on the other hand, has lower interest rates as it is a secured loan and the lender has a collateral to fall back on in case of default. However, it may vary from bank to bank as some lenders may offer you lower interest rates on a personal loan.
Loan amount: Personal loans are typically smaller in amount compared to a loan against securities, as they are unsecured and the lender does not have any collateral to fall back on in case of default. Loans against securities, on the other hand, can provide a higher loan amount as the lender has a collateral to fall back on in case of default.
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Repayment tenure: The repayment tenure for personal loans is usually shorter, typically ranging from 1 to 5 years. A loan against securities, on the other hand, can have a longer repayment tenure, ranging from 5 to15 years.
Documentation: Personal loans usually require minimal documentation, whereas a loan against securities may require more extensive documentation related to the collateral being offered.
Finally, personal loans and loans against securities serve different purposes and have different terms and conditions. It is important to evaluate your financial situation and requirements before deciding which type of loan is best suited for you. It is always advisable to read the terms and conditions carefully, compare interest rates, and choose a loan that fits your financial goals and repayment capacity.
Interest on Personal Loan VS Loan Against Securities
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Note: Interest rates (with loan tenor >1 month) on Personal Loan and loan against securities for all listed (BSE) Public and 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 April 2023. Banks are listed in ascending order on the basis of personal loan interest rate in their respective category, i.e. bank offering the lowest interest rate on personal loans 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 a loan.
