In times of serious crisis be it contraction of some critical illness or a tragic accident, financial inadequacy adds to the problem. While personal finance rules always favour keeping a buffer for such rainy days as a contingency or emergency fund depending on your income inflow as well as month-on-month expenses, there can be possibly two scenarios at your end. One you might be maintaining an emergency fund which for the current situation might not suffice and the other case might be when you never planned for such unforeseen times and do not have anything in the name of emergency fund.
It is in such situations, where your inherited or other assets and investments that you have accumulated over the years come to your rescue. Yes, these assets can be put as a collateral with a financing institution and after the bank or financing entity is done with the due diligence exercise, quick and easy disbursal of loan is made to you.
So, here is given a list of assets against which you can take loan and tide over any emergency at hand:
Typically every average class household in India owns gold. And to obtain loan against your gold holdings, you need to be in the age bracket of 18-75 years. Furthermore, to qualify for receiving funds against gold, its purity level needs to be between 18K-22K. Generally the loan tenure is of 3 years but it can extend to a maximum of 20 years.
Usually, a maximum of 75% of the market value of gold kept with the financier is sanctioned as loan amount and it can be anyway between Rs. 1000- Rs. 2 crore. Also, there is a loan processing charge which comes up to be 2% of the loan value.
Insurance policies primarily endowment and money back plans prove to be another safe harbour which you can look upon to in times of distress. Notably, term plans and ULIPs do not qualify for securing loan. Interest rate on loan against insurance plans depends on the quantum of premium paid by you and may be in the range of 9-12%.
The policyholder can secure anyway between 80-90% of surrender value as loan amount in case of conventional insurance schemes. Term of the loan is dependent on the policy term i.e. its maturity.
Loan against property or popularly referred as LAP in banking parlance is yet other option to tide over financial crisis. But to be eligible for it banks have laid out certain pre-specifications that include a credit score of preferably more than 750; salaried class need to be in employment for a minimum of 3 years while others in business or self-employed category need to have their business running for a minimum of 5 years.
These loans are comparatively cheaper with an interest rate of 8.8-15%
as banks are in safe position with property kept as a collateral and in case of default by the borrower the financing institution has the right to liquidate the property to meet its due amount i.e. both the principal and loan amount.
Typically, loan amount of up to 60-70% of the market value of the property is sanctioned. As far as tenure of LAP is considered it is up to 15 years. While some of the banks even extend it till 25 years but the age of the borrower at the maturity of the loan needs to be 65-70 years.
4.Securities such as shares, mutual funds, bonds:
To secure loan against such securities, you need to be first more than 18 years in age. In case of shares, maximum of 50% of market price is extended as loan amount while in case of equity funds, loan amount is decided basis the NAV. And for debt funds and bonds, borrower can secure up to 85% of market value.
Further, depending on the holding type i.e. if these securities are held in demat form, one can get a maximum of Rs. 20 lakh subject to one’s holdings which he or she wishes to keep with the financier. While in case of physical holding, loan amount can be up to Rs. 10 lakh. Tenure of such a loan is 1 year which is extended later. Interest rate charges can be in the range of 10-15%
Loan against FD is a cheaper loan with interest being just 1-2 odd per cent higher than the FD interest rate. And banks give up to 95% of the FD value as loan. Another advantage of FD loan is that there is generally no processing fee as well as pre-payment penalty. And tenure of the loan against FD can be up to the FD maturity term. It is to be noted that FD that is in the name of a minor does not qualify for loan. However the condition may vary from bank to bank.
While car is a depreciating asset, it too can provide you with ready cash. But here the condition is that your car preferably needs to be less than 5 years old. Interest rate on car loan is 11-16% and banks can allow anywhere between 50-150% of the market value of car as loam amount. Further, as far as the charges are concerned, there is a processing fee of 1-3%, other than it there is charges for documentation work, stamp duty, collateral charges plus overdue EMI interest charges as though the case may be. Term of loan against car can range between 1-7 years.
You need to just produce a proof of salary being credited to your bank account for the last 3 months and then you even get credit on your salary. Here the net salary should be over Rs. 12000 per month. Basis your net salary, you can get up to a minimum of 2.5 times or max in some of the cases 6 times the net salary as loan amount. Interest at the rate of 1-3% per month is charged on such a loan. And the tenure is anyway between 1-12 months.