These 4 asset classes against which you can apply for a loan
Fixed deposit overdraft
Fixed deposit overdraft is another popular investment vehicle that you can choose to take out a loan. Fixed deposit is also part of the asset class. Instead of breaking your FD prematurely, for which banks tend to levy premature withdrawal penalties in most cases, you can take out a loan on your FD, while your bank FD continues to earn interest for the duration of the deposit.
Most lenders provide a loan against an FD in the form of an overdraft facility, similar to securities loans, so as a depositor you only have to pay interest on the amount used from the sanctioned limit, and you are charged until it is paid off.
You can qualify for a loan of around 85% to 95% of the amount of the bank FD, with interest rates usually around 1% to 2% higher than the contract rate of the FD pledged as collateral.
Loan against gold
Gold is undoubtedly one of India’s most popular investments. Gold is preferred by all classes, whether for investment or because of the strong history and culture around gold. Due to the widespread availability of this asset in India, taking a loan against it is a common practice among those who have enough gold to pledge.
Fast disbursements, a short payback period of up to three years and an LTV (Loan to Value) ratio of up to 75%, and flexible repayment choices other than traditional EMI, such as bullet repayment, initial interest payment etc. are some of the important aspects of gold loans.
Loan on property
When you have a financial need, especially a large one, you take out a loan on a property you already own. Many lenders offer home loans on a variety of property categories, including residential, commercial, and industrial. These lenders also include banks.
The LAP loan amount is determined by the market value of the property as well as the lender’s LTV ratio, which normally ranges from 50-75%. In terms of repayment time, the LAP can normally be repaid in as little as 15 to 20 years.
Another loan option for pledging property for finance is a reverse mortgage, which is specifically developed for senior citizens in need of funds. This page talks about it at length.
In addition to these assets as collateral for a loan, a few lenders also offer a vehicle loan, which allows you to borrow money by giving away your car. You will receive a percentage of the market value of your vehicle as a loan to meet your financial needs. Plus, if you have a credit card, you can enjoy the added benefit of a credit card loan.
Loan against securities
If you’re an investor or whatever, you’re probably unaware of the securities lending option. Securities here refer to stocks, mutual funds, insurance policies, etc. This option allows borrowers to borrow against their securities rather than buying them back.
This facility is especially handy with market-linked assets like bonds, mutual funds, and stocks, where you can lose money when you need it and buy it back when your portfolio is negative.
When you take out a loan on your securities, your securities continue to earn interest and you continue to receive credit for interest, dividends, bonuses, etc., if any, on the pledged collateral. Regarding the amount of the loan, it will depend on the type of security pledged and the LTV ratio assigned by the lender for this security.