5 Financial Instruments to Help You with a Quick Loan

Making the decision to obtain a loan is one of those scenarios you prefer to procrastinate until the need becomes real and pressing. However, just like all other ‘grown-up’ things in life, a personal loan too might someday become your reality. And if you believe us, it is not so dreadful after all, as it has been characterized into. In fact, in many ways, securing a loan today might just be more hassle-free than ever before, provided you have done your homework.

Before you succumb to the persistent pressure of the rather persuasive marketing executive, you should consider the possibility of using financial instruments against loans. Financial instruments can be real or virtual documents representing a legal agreement involving any kind of monetary value. Equity-based financial instruments represent ownership of an asset. Most consumers are unaware of loans against securities, including shares, mutual funds, gold, and other financial instruments. Taking loans against financial instruments is hassle-free and offers immediate liquidity. Today, many banks and NBFCs offer such loans in the market, with the rate of interest varying from 9% to 22%. Hence, you can always lean on your financial instruments to ease your burden of carrying a loan.

Here are 5 Financial instruments against which you can take a loan:

• Gold:

Gold is probably the most common metal found in Indian households. Indians have always valued gold as a secure asset, serving the dual purpose of adornment and an emergency financial backup in one. Considering this fact, the RBI has allowed keeping gold as a mortgage against which a loan of 75% of its value can be secured. Which means, for gold worth INR 60,000/- you can get a loan of up to INR 45,000/- with an interest rate of 12 - 17% depending upon the lender.

• Life Insurance:

You can literally take loan against your life provided you have been paying your LIC premiums for at least the past 3 years. In which case, you are eligible for a loan amount of 90% of the surrender value. The interest rate can be 9-10%.

• Fixed Deposit:

This type of loan extracts maximum money as the collateral is money itself. The LTV (loan to value) is almost 90% with many banks and comes with a better rate of interest as compared to other instruments. The interest rate is around 2-2.5% higher than interest paid on deposit by banks.

•  Property:

If you own a property such as a house or a commercial establishment, then you can use this as a mortgage for a goodly loan of 65% to 70% of the property value and long tenure of repayment (max. 15 years). The interest rate spans between 11-15%.

• Shares:

If you have invested a good enough amount in equity shares, then you can avail a loan against the shares. In loan against equity shares, while the interest rate might vary from 11%-22%, the amount and tenure will depend entirely on the financial institution. Usually, it is about 50% of the value of the shares. As per RBI guidelines, an individual borrower can’t be granted a limit of more than Rs 20 lakh against shares and equity mutual funds.

At the end, lenders definitely have a monetary interest to lend you loan but at the same time, they also need to minimize their risk. Hence, they run numerous morality tests to ensure you do not dupe them. Lenders check your application scorecard before handing you down the money. Application Scorecard  for credit are tools that allow organizations to predict the risk of a customer paying or not. Credit reports give them a clear idea of your financial skills. Hence, you are required to have a minimum credit score for personal loan in order to qualify. In India, it is generally advisable to have a Credit/CRIF score of 750 or above to obtain a loan smoothly. If you do not know yours, you can check personal credit score on the CRIF website.