Five Alternatives to a Personal Loan That You Need To Know

While many people today are aware of the benefits of availing a Personal Loan, have you thought about what you would do if you couldn’t get one? As easy as it is to avail a Personal Loan, your application can also get rejected just as easily due to various factors. If you have a poor credit history, then your chances of getting a Personal Loan drop significantly. You may not have missed any loan/credit card payments, but if you have already taken too many loans in the past, or are currently paying off a number of them, that will then affect your chances all the same. Sometimes, you may also not earn enough to make monthly repayments. Bankers are also liable to reject your Personal Loan application if they find that you have an insufficient employment history, or if you have changed many jobs in the past. Banks can’t expect you to pay off a Personal Loan if you don’t hold a stable source of income in the first place, yes?

Of course, most of you will only approach a bank or financial institution for an Online Loan after you’ve made sure you meet all the eligibility criteria. However, it won’t hurt you to know the various other loan options available out there in case of an emergency. The following are five alternatives to a Personal Loan you can avail in case of a financial crisis:

  1. Loan against Property: In this type of loan, you can mortgage either your residential or commercial property (or even plots of land that you own) in return for a loan. Banks and other financial institutions only offer loans against a specific percentage of the market value of the property. It is foolish to expect that you might get a loan up to 100% of the market value. The usual rate you can expect on average is between 60-70%, depending on the bank. Interest rates for this type of loan start at 9%. It is a good idea to avail such a loan only if you have a significantly large financial requirement.
  2. Gold Loan: A loan against gold or a Gold Loan is another viable option that you can consider if you’re running short of funds and cannot avail a Personal Loan. The loan amount that you finally receive is of course based on the value of your gold ornaments or gold coins that you may have (although banks have a certain limit for the weight of gold coins). The disbursal here is very fast, sometimes within just one hour. The documentation/processing charges are also very minimal. Interest rates typically start at 9.5-10%. What makes this loan very popular is that the amount disbursed depends on the value of the gold than the repayment capacity of the customer.
  3. Loan against Car: If you own a car but can’t seem to get your Personal Loan approved, then you needn’t worry just yet. You can avail a loan against your car, but since this type of product is relatively new, there are a host of conditions that come along with it (apart from having a job and a monthly income). At the time of applying for such a loan, banks monitor the age and condition of the car and even look at how popular its model is. For example, some banks may not give you a loan if your vehicle is more than a year old. Interest rates here start at 8.5% on average, and the tenure of the loan can go up to 3 years.
  4. Loan against Fixed Deposits: This type of loan is a favorite among traditional customers, who want to steer clear of risk as much as possible. If you ask your parents, they’d probably tell you how much they trust FDs as a long-term source of funds. A benefit of availing such a loan is that it comes with low rates of interest and very less processing time (sometimes less than 24 hours). Lending banks usually offer loan amounts of up to 85-90% of the value of your fixed deposit, but that varies from bank to bank. The interest rate is often 1 or 2% above the term deposit rate.
  5. Loan against Securities: This kind of loan is a favourite among investors that have built up a portfolio of securities over time, which they don’t want to liquidate in the event of a financial emergency. If you fall under this segment and can’t seem to be able to avail a Personal Loan, a loan against securities could be a good option. What happens here is that the bank opens a current account with overdraft facility on your name, and sets a borrowing limit based on the value of your securities. Investors can withdraw draw from the account whenever they want and can repay it by depositing the amount back into the account. Simple!  The value of the loan is a set percentage of the security value, which again differs based on the type. Interest is charged on a monthly basis, on the outstanding balance in the overdraft account.
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