From Property To Gold: Assets Against Which You Can Take A Loan

As soon as we begin earning and gain the wings of financial independence, we are often advised to focus on creating assets, like real estate, gold, etc.

While assets are mostly deemed synonymous with the word investment, as you aim to generate good returns and/or liquidate it at profit, thereĄ¯s another lesser-known facet of having assets, i.e. loans.

Whenever you are in need of funds due to financial shortfalls or exigency in life, you can take a loan against an asset. This will not only prevent you from losing the ownership of the asset (unless you default on the loan repayment, which would have been the case if you had liquidated that asset through sale or redemption, but also act as another loan option when denied other loans like a personal loan.

Eager to know such assets that can fetch you a loan and bail you out of monetary shortfalls? Read on as we unfold these.

loan against asset

Also Read: Does It Make Sense For Millennials To Apply For A Home Loan In Their 20s

1. Gold

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The glitter of gold shines across lots of households in India, isn't it?

ThereĄ¯s no doubt that gold is one of the most preferred assets in our country. Whether the reason is purely investment or due to the prevalent tradition and culture pertaining to gold, many Indian households tend to have a preference for this glittering asset.

And this relatively mass presence of this asset in our country makes taking a loan against it quite a prominent practice around the country for those who have substantial gold to pledge.

Gold loanĄ¯s key features include quick disbursals, short repayment tenure of generally upto three years, LTV ratio of upto 75% and flexible repayment options apart from usual EMI option, like bullet repayment option, upfront interest payment option, etc. Such flexibility in repayment often turns out to be helpful for those who have irregular income or may prefer the non-EMI options for repayment of gold loan.

Also Read: Does It Make Sense To Buy A New Car Or Just Uber Everywhere?

2. Securities like shares, mutual funds, insurance policies etc.

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More often than not, investors and policyholders are unaware of the loan against securities facility, wherein borrowers can avail a loan against the security held by them, instead of redeeming them.

This is especially helpful in the case of market-linked securities like mutual funds, bonds, shares etc wherein you may incur losses if you need funds and happen to redeem them when your portfolio is bleeding red.

Many financial institutions provide loans against securities, including pledging of bonds, shares, ETFs, mutual funds, NSC, life insurance policies, KVPs, etc.

Wondering about the interest or returns on the security? Don't worry, your securities continue to earn interest returns and you continue to receive the credit of interest, dividends, bonuses, etc., if any, on the pledged collateral. As far as the loan amount is concerned, it would depend upon the type of security pledged as collateral and the LTV ratio (Loan to value ratio) assigned by the lender for that security.

Also, keep in mind that this loan option is usually offered as an overdraft facility with a sanctioned credit limit, implying that the borrower is free to withdraw either the entire sanctioned limit or a part of it as per the respective fund requirements of different borrowers.

Accordingly, the interest is charged on the basis of the amount withdrawn and not the total sanctioned limit, and charged until the repayment is done.

Also Read: Does It Make Sense To Invest Your Surplus Or Prepay Existing Home Loan With It

3. Fixed Deposit

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Another popular investment instrument in our country is a bank fixed deposit. While most FD investors are aware of the partial withdrawal/closure facility to help in times of financial shortfalls, not many might be aware of the loan against FD feature.

Yes, instead of breaking your FD prematurely, for which banks tend to levy premature withdrawal penalty in most cases, you can take a loan against your FD, whereas your bank FD continues to earn interest during the deposit tenure.

Like loans against securities, most lenders generally offer a loan against an FD in the form of an overdraft facility, so as a depositor, you are required to pay interest only on the amount utilized from the sanctioned limit, and is charged until its repayment. You can avail a loan of around 85%-95%of bank FD amount, with the interest rates usually being around 1%-2% higher than the contracted rate of FD pledged as collateral.

Quite naturally, the tenure of loan against FD depends on the residual tenure of the FD put as collateral, besides factoring in of any particular minimum and maximum tenure limit of any bank, if present

Also Read: Frequently (Not) Asked Questions - What Are The Risks Of Investing In 'Safe' Bank FDs

4. Property

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Also Read: Does It Make Sense To Buy A House Or Rent One?

On hearing property and loan, first thing that comes to mind is home loan, right? But no we aren't talking about home loan here. A home loan is when a lender helps you to buy a house property that you wish to own, by availing a home loan from the bank or HFC.

But here, we are talking about loans against property (LAP). You take a loan against an asset you already own (i.e. property), whenever a monetary need arises, especially a big ticket one. LAP is offered by many lenders against property types like residential, commercial and industrial. Some even offer it against plot/land.

The loan amount for LAP would depend on the property market value, and the LTV ratio offered by the financial institution, which generally ranges around 50%-75%. As far as tenure is concerned, LAP can usually be repaid in upto 15-20 years.

So, for those property owners who need funds due to financial shortfall, especially a relatively big ticket one which might not be fulfilled by a personal loan or other loans, or simply you are unable to or do not wish to take that road as a loan option, LAP can be turn out to be a helping hand. Plus, there is no restriction on end usage of funds (except speculative purposes). So you are free to use it for personal purposes like childĄ¯s marriage or higher education, or business purposes like working capital.

When it comes to pledging property for funds, another loan facility is the reverse mortgage facility, which is specially designed for those in old age and require funds. You can read in detail about it in this article.

Besides these assets against which you can take a loan when needed, few lenders in India also offer the facility of loan against car, wherein you can avail funds by pledging your car. As per the market value of your vehicle, you will be offered a percentage of it as loan to fulfil your money requirement.

Moreover, if you possess a credit card, you can avail the super benefit of a loan against a credit card. Click here to know more about it in this article.

Also Read: Does It Make Sense To Buy A House Or Rent One?

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