What can be used as collateral for a Personal Loan?

What Can be Used as collateral for Personal Loan?

Investments we make not only help us build wealth, but also can rescue us in times of crisis. Here are some of the best options widely accepted as loan collateral.
Investments not only lead to building wealth, but also to our financial resources to save us in times of crisis. The next step when credit is available is to split or stop our investments. But sometimes we only need a small amount compared to what we give up if we break our investments.

In this scenario one can envisage relying on investment, which can be used as a loan collateral, which can effectively release the investment when reimbursed. However, not all investments can be used as credit guarantees. Let’s discover some of the best options commonly accepted as collateral for secured loans and how to use them.

Against Property

Property deeds are the most common collateral used as a mortgage. The property may be both residential and commercial, but only the deed holder or at least one of the co-candidates should be a title holder shall be granted the loan.

In the event of preparation, home acquisitions or company financing, property papers will preferably be used as loan guarantees for higher sums. These loans are guaranteed loans and can therefore have a slightly lower interest rate.

However, you should remember that the bank or financial institution may take possession of the mortgaged property if the borrower can not pay the loan fully. Legal protection is, however, provided that the amount owed is not as high as the value of the property. In such a scenario, please make sure you contact your financial planner and lawyer.

Against Life Insurance

Not all policies for life insurance are eligible for a loan. IRDA guidelines state that the unit-linked insurance plans and term insurance policies are not eligible for loans. But traditional insurance policies like endowment and money-back plans can receive loans. Therefore, it is important to check the type and eligibility of your life insurance policy.

If your life insurance is Rs 10 lakh at the end of the tenure, you will not be eligible for a Rs 10 lakh loan. In fact, the sum of the loan depends on the value of the program. Render value is the actual value of the policy when you voluntarily terminate the plan. In certain instances, you could be liable for a loan of up to 80 % to 90% of the surrender value and no bonus portion is taken into account.

Against Government Bonds

It is advisable to construct portfolios of bonds, deposits, equity shares and mutual funds so that some of these can be used as debt guarantees when they are needed. Of these government bonds, sovereign gold bonds and more, when attempting to secure a loan, can be used as collateral. Although bonds are less liquid than other bonds, they are a highly reliable bond issued by the government, the creditworthiness of which is high among lenders.

Against National savings Certificate

NSC holders can easily use loans for their certificates as most banks do not challenge the need for a loan. The interest rate on NSC loans may be lower than conventional personal loans.

The quantity of the loan one can use depends on the bank that is approached by an individual, with loans varying according to different policies. Banks offer loans up to 85 to 90% of the NSC value, with changes in the tenure of certificates changing the amount. Certificates in force for more than three years are the largest sum. Borrowers are also able to reimburse the loan in advance before the term expires.

Fixed Deposit

Through using this as a collateral, the Bank will give you a loan against your term deposit. In fact, the interest rate paid on your term deposit loans is much smaller than conventional loans.

A personal loan against FD is easy to obtain and usually takes less than one day for the process. A duly completed application form, fixed deposit receipts and other documents, such as the pledge / link letter and overdraft agreement notified by the bank, must be presented by the person.

When considering unsecured loans and credit lines?

Faster approvals and less paperwork are the main advantage of an unsecured loan. In general, unsecured loans are harder to obtain because they require a better credit score because no assets or collateral would secure your credit.

Whilst unsecured loans can be obtained faster, it is important to remember that a higher interest rate is likely to be paid. The four most frequent reasons why customers choose unsecured loans are for car purchases, home renovations, medical bills, education, and debt consolidation.

Car loans take less time than a secure loan, with high competitive interest rates

The uninsured personal loan for home refurbishment projects is ideal as you can easily access funds for projects with predictable costs

You may be interested in an unsecured personal credit line for ongoing expenses like paying tuition or covering medical expenses

If you have unpaid debts, personal loans will help resolve them. This plan helps you handle your monthly payments at interest rates lower than credit cards.

When considering secured loans and credit lines?

The main advantage of a secured loan or credit line is that you can generally access more money because the security of your assets supports you.

Since secure lending products require collateral, the approval process can take longer to process and verify the collateral. This initial due diligence can be worth the extra effort because lower interest rates are good for you. Large home renovations and debt consolidation are two cases in which you can choose to use a secured loan or credit line.

Unlike smaller renovations, you may want to make more extensive improvements to your home by obtaining a secure loans product. A stable credit line will allow you to access a wider loan limit with a lower interest rate that you can still use for large projects.

If you have outstanding debts, your current assets (such as property and credit line) will help you combine your debts into a loan. A personal loan will allow you to handle your monthly payments with lower interest rates than most credit cards. A protected credit line also offers easy access to low-interest funds to help manage current loans and repay them.