Personal loans are a wonderful and easy means to raise funds in case of an urgent requirement. There are no security requirements for availing a personal loan whose processing time is the minimum. Thus many people prefer this option over the other kinds of loans that are available in the market. However there are a few inherent disadvantages of personal loans which have negative financial implications. The interest rates of personal loans are the highest ranging around 15-20% as they are unsecured. Additionally the repayment tenure of the personal loans is shorter typically being restricted to 5 years or less. Thus the EMI commitment in case of personal loans is higher. Keeping in view these limitations of personal loans it is worth while to examine other options that can be used in such requirements.
Gold Loans: These are preferred over personal loans as they come at a much lower interest rate of about 12-15% since one has to pledge gold as a security against the loan. Normally the financing companies provide up to 90 % of the value of the gold pledged as the loan amount and the processing time is very less.
Loans against Insurance Policy: Loans against existing insurance policies are available for an interest rate of 9-13% which is much lesser than personal loan rates. By providing the insurance policy as a security one can avail such a loan within a short span of a couple of days. The policy has to be paid for at least a period of 2 to 3 years before being provided as security.
Loans against Fixed Deposits: Even fixed deposits can be pledged to raise loans in an emergency. The interest rates for such loans are about 1-2% higher than that specified for the fixed deposits. The amount available in such loans is up to 85% of the value of the FD at that point of time. Such loans are required to repaid in full before the maturity of the fixed deposit against which they were availed.
Loans against Property (LAP): Most banks and financing institutions provide loans against existing property of the customer to a maximum of 60% of the prevailing market value of that property. Typically such loans come at a interest rate of 15016%. The processing time involved may be longer in this case as the valuation of the property needs to be done prior to sanctioning the loan.
Temporary advance from Employer: this is yet another alternative to personal loans that salaried people can explore. The processing time is minimal as the sanctioning authority in this case is the employer and the rates will be minimum as it is only a temporary advance that the employer can easily recover from the salary of the individual.
The need and the current financial situation of the burrower will determine the exact level of utility and efficiency of availing any other type of loan as against a personal. The time factor in processing of the loan is a major criteria in deciding on the type of loan in an emergency situation.