Last Updated: Tuesday, July 11, 2017

In Need of Money? Think these options before you apply for personal Loan and Credit Cards

Images: Money n Business_best Loan option for an individual; credit cards, personal loan, gold loan etc

When we were children we were taught that the three essential things for man to survive are food, shelter and clothing. Guess they missed out one major thing; 'Money'. How can man survive without money? We are in constant need of it. And worst of all is that it is totally unpredictable. It is true that with personal loans and credit cards you can take care of these sudden expenses. Further, it is easy to obtain, and time saving. No wonder they are the darling of so many people. 
However, beware of these wolves in sheep’s clothing. Personal loans and credit cards charge you incredibly high interest rates. It ranges anywhere between 12% to 25% for personal loans and 30% or more for credit cards. 

Besides they have many hidden charges and fees. These are designed to suck your money as far as possible. Banks charge administrative and processing charges on personal loans. For credit cards, the banks charge on every cash advances. This may range from 3% to 5% of the total cash used. It raises the cost of using credit cards pretty high. 

Then there is the need to prove your credit worthiness. It might delay the processing time and raise the interest on the loan. 

However, if you are financially independent and you have assets of your own why in god’s name should you go for these high-cost options? Here is some other options where you can reduce the amount of interest paid, prove your credit worthiness;

1. Loan against Gold: One best option to get urgent money is by way of pledging your gold for the amount of money. This is a very easy and fast way to obtain money. You can lower the interest charged on it by providing gold more than the required amount. You can also decide the mode of repayment. You can either pay the full amount or recover your gold or else you can opt to repay it at regular intervals. 

The documentation and processing time is kept to the bare minimum. All you need is gold to pledge and your identity proof. You need not be a credit worthy person and moreover no one is going to ask why you need the loan amount. Every one seems to mind their own business here! 

2. Loan against Property: For huge amounts of loan, pledging your residential or commercial property is the best option. However the property must not be mortgaged. Banks provide about 50% of the value of the property as loan and 30% to 40% of the income received from the property if any. An interest rate between 13% to 16% is charged. The loan amount can be increased if the value of the property increases in the meantime. 
However, most banks charge processing fees and it takes around 10 days to 15 days for the loan to be processed. 

3. Loan against Insurance Policies: There is also an option to get loans on the insurance policy that we have taken. However, loans are only sanctioned on policies after three years of full payment of premium. The processing time is 2 days and the interest rate is 8% to 9%. You can avail loan about 90% of the surrender value of the policy. 

4. Loan against Shares: Banks provide you loans against shares and mutual fund units. These provide loans with 13% to 16% interest. Only individuals are eligible for this kind of loans. However, banks have stipulated on which share-loans can be given. This is because shares are highly volatile and banks prefer stocks of blue chip companies that are stable and provide good returns
Loans against shares and mutual funds provide liquidity to these instruments without actually having to sell. 

5. Loan against Saving Certificates: You can also pledge you’re saving in NSCs, Kisan Vikas Patra, Bonds etc. You can avail a loan amount about 75% to 100% of the face value of the certificates of 3 years and more. The interest charged is 4% above the bank rate and 5% above the certificate’s rate. However, the processing time it is limited with a loan being sanctioned within 1 to 2 days. 

With lots of other options available to avail of loans it is foolish to run for personal loans or use your credit cards lavishly every time you need money. However, think well before you choose which option to use because every option has its own advantage and disadvantage. Choose which is most suitable for you depending on the asset you posses and the money you need. 

However it is better to cultivate a disciplined financial behavior so as to come up with a contingency fund in the long run. With such a fund you need not raise an amount by pledging your asset. You can also join a reputed Chit fund if you have a need for money in the near future. 

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