Pledge Your FD, Shares, Gold To Get Money At Cheaper Rates Than Personal Loans

Borrowers typically turn to personal loans from banks and non-banking financial companies (NBFCs) for their emergency financial requirements. However, these loans often come with higher rates of interest as compared to other alternatives.  

For instance, Punjab National Bank offers loans up to 24 times the gross monthly salary to their salaried customers at rates of interest ranging from 11.75 per cent to 16.95 per cent per annum.  

HDFC Bank, on the other hand, provides loans ranging from 10.50 per cent to 25 per cent, while State Bank of India offers loans in the range of 11.30-14.30 per cent for salaried individuals not holding an SBI account. The rates are higher for other class of loan applicants.

If you are concerned about these high rate of interest, then there are other options that you could consider as alternatives to personal loans.

Here are a few of such options.

Loan Against Fixed Deposits: You can pledge your fixed deposit (FD) as a collateral with the same bank where you have your deposit, and obtain up to 85-95 per cent of the deposit amount as loan. The rate of interest is typically 1-3 per cent above the FD rate. For instance, SBI charges 1 per cent above the relative time deposit rate on loans against FDs. So, effectively, the rate of interest would be a maximum 8 per cent, resulting in a significantly lower rate of interest as compared to personal loans.

Loan Against Shares and Mutual Funds: By using shares or mutual funds as collateral, borrowers can access loans based on the current value of their securities. Pledging equity shares allow loans up to 50 per cent of the present value of the share. You can avail of a loan against shares only if you hold shares in the bank’s approved list.

Pledging mutual funds will also provide you loans up to 50 per cent of the net asset value (NAV) for equity, hybrid or exchange-traded funds (ETF), and 80-85 per cent for debt funds. SBI charges a rate of interest of 11 per cent for loans on mutual funds, but the rates could vary based on the borrowers’ credit score and the bank’s existing lending policies. HDFC Bank, for instance, offers instant disbursal as digital loans via Netbanking, with a maximum loan amount of Rs. 20 lakh.

When opting for a loan against securities, customers should get an overdraft facility in their account after depositing their securities. This way, the interest will be charged only on the actual loan amount used, calculated on the basis of the daily outstanding balance.

Loan Against Gold: You could also pledge your gold ornaments or jewellery with the bank or NBFC in return for a specific amount of loan. Availing a loan against gold is an easy process compared to getting a personal loan, as only minimal documentation is required.  

The maximum loan amount can be Rs. 50 lakh with an overdraft facility. Borrowers can also avail of loans as high as 75 per cent of the pledged value of gold. The rates of interest are much lower compared to those on personal loans. For instance, HDFC Bank’s Gold Loan offers a rate of interest in the range of 8.30-16.55 per cent, with the average usually being at 11.62 per cent. Additionally, lenders may charge Goods and Services Tax (GST), government taxes, levies, loan processing charges, and valuation fees separately.

Loan Against Insurance: You can also take a loan up to 80-90 per cent of the surrender value of your insurance policy. The insurance policy that is to be pledged with the bank or NBFC should have a cash value at maturity. Typically, endowment policies and money back policies can be pledged, while term plans cannot be pledged. SBI charges a rate of interest of 11 per cent, but this could vary across banks.

The policy doesn’t need to be with the same group that owns the bank, but it must be eligible according to the bank’s list. Typically borrowers can pledge policies from the Life Insurance Corporation (LIC) of India or other reputable private insurers listed by the bank.

Peer-To-Peer Lending Platforms: P2P lending connects borrowers and lenders directly through online platforms. Borrowers can access personal loans starting from 11 per cent. According to data from BankBazaar, the rate of interest ranges from 6.5 per cent to 15 per cent across platforms.  

However, prospective borrowers need to pay a one-time, non-refundable registration fee that can range from Rs. 100 to Rs. 1,000. Also processing charges ranging from 2-8 per cent on the loan amount may also have to be paid.

To ensure the interests of both lenders and borrowers, the Reserve Bank of India (RBI) regulates P2P lending platforms.

So, these are the five other options that you could explore instead of taking a personal loan if case you are in urgent need of money.