Loan Against Securities or Personal Loan: Which Is Better?
Are you looking to fulfil your financial aspirations? Imagine having the access to unlock funds based on your securities or creditworthiness. That’s where Loan Against Securities (LAS) come into play. This dynamic financial solution can help you meet your diverse monetary needs instantly.
Whether you want to leverage your securities portfolio or require quick access to unsecured funds, understanding the differences and benefits of loans against securities and personal loans is vital. This article will understand and compare a loan against securities vs personal loans.
Loan Against Securities vs. Personal Loan
Loan against securities(LAS) and personal loans(PL) are distinct financial products that cater to different borrowing needs. Here are the key differences, based on specific factors, between loan against securities and personal loans:
Purpose
A loan against securities can offer individuals the flexibility to access funds for various purposes, such as funding a business expansion, meeting personal financial goals, or addressing unforeseen expenses. Conversely, personal loans can cater to a wide range of personal financial requirements like consolidating debts, covering medical expenses, planning a dream vacation, or managing wedding expenses.
Eligibility Criteria
For loans against stocks, a digital loan against mutual funds, bonds, or insurance policies, lenders may evaluate the borrower’s creditworthiness. However, personal loans have eligibility criteria based on factors such as the borrower’s credit score, income stability, employment history, and existing debt obligations. Due to their differing eligibility criteria, LAS and personal loans can each be suitable for individuals with different financial profiles.
Loan Amount
Generally, lenders offer a loan against shares and securities up to a certain percentage of the market value. However, personal loans can offer borrowers a predetermined loan amount based on their income, creditworthiness, and other financial factors. Thus, understanding the loan amount variations between LAS vs personal loans enables borrowers to select the option that aligns with their financial requirements.
Interest Rate
When it comes to interest rates, LAS vs personal loans become distinct. The loan against securities interest rate is usually lower than that of other forms of unsecured loans like credit cards or personal loans. This is because personal loans are unsecured loans. They usually have higher interest rates since the lender is taking a higher risk while lending funds against no collateral.
Documents Required
The best option for personal loans may require minimal documentation, while a loan against securities may require more documentation related to the collateral. The differing documentation and servicing procedures between LAS vs personal loan can make a difference in ensuring a smooth borrowing experience.
Repayment Tenure
Repayment tenure can be a vital aspect to consider when comparing a loan on securities vs personal loans. Personal loans typically have shorter repayment terms, ranging from one to five years. However, the repayment tenure of a loan against securities can range from 5 to 15 years. The repayment tenure for the loan against mutual funds at smallcase is 36 months.
Loan Against Securities vs Personal Loan
Let’s summarise the differences between a loan against securities vs personal loan in the following table:
| Points of Comparison | Loan Against Securities | Personal Loan |
| Purpose | Borrowing money against securities (stocks, bonds, etc.) held as collateral | Borrowing money for personal use (e.g., medical expenses, vacation, home renovation) |
| Collateral | Requires securities (stocks, bonds, mutual funds, etc.) as collateral | Typically unsecured, may not require a collateral |
| Interest Rate | Generally lower loan against securities interest rates due to the presence of collateral | Interest rates may be higher since they are typically unsecured |
| Loan Amount | Loan amount may depend on the value of the securities used as collateral | Loan amount might be determined based on income, credit history, and other factors |
| Tenure | May have short to medium term, depending on the loan agreement | Can have both short and long-term options |
| Repayment | Can range from 5 to 15 years | Can range from 1 to 5 years |
| Flexibility in Usage of Funds | Restricted to specific purposes such as investment or business needs | Can be used for any personal expenses as per the borrower’s choice |
| Creditworthiness | Less emphasis on credit history as the securities can act as collateral | Credit history and creditworthiness can play a significant role |
| Processing Time | Relatively quicker processing time as collateral can be easily available | Processing time may be longer due to additional verification and evaluation |
| Risk of Asset Liquidation | If the borrower defaults, the lender can liquidate the securities to recover the loan amount | No direct risk of asset liquidation for personal loans |
What are the Deciding Factors Between Loan Against Securities vs Personal Loan?
When deciding between a loan against securities and personal loans, there are several key factors that you might consider before making an investment choice.
- Availability of Collateral: In a loan against securities, your securities are pledged to the lender as collateral, meaning you cannot sell them. On the other hand, personal loans do not require collateral. However, if you have substantial investments and need a higher loan amount, a loan against securities may be the better option. This is because lenders usually have a higher maximum loan amount for LAS, than for personal or unsecured loans.
- Cost Implications: Loans against securities may offer lower interest rates than personal loans. This can result in lower overall borrowing costs, making them a more cost-effective option.
- Emergency Situations and Investment Preservation: In cases of emergencies, it may be better to consider taking a loan against securities rather than liquidating your investments. By choosing this option, you can access funds while preserving your investments’ potential for growth.
Is Loan Against Securities the Future?
One of the most popular questions on the minds of individuals seeking financial assistance is whether loans against securities (LAS) hold the key to the future of lending. The future of loans against securities can hold promising prospects in the ever-evolving landscape of financial solutions. As we assess the potential trajectory of LAS, it can be important to consider the current share market trends and predictions for this loan option.
When comparing LAS with other alternatives like Personal Loans, the benefits of utilising securities as collateral can become apparent. LAS provides individuals with access to funds by leveraging their securities portfolio. This collateral-based lending approach can offer flexibility, higher loan amounts, and potentially more favourable interest rates.
Additionally, LAS aligns well with the shift towards digitisation and online platforms in the lending industry. Technological advancements and streamlined processes are potentially making it easier for borrowers to apply for and manage LAS. For example, the digital LAMF at smallcase, as a type of LAS, is a convenient way to secure funds within just a few hours! The convenience, speed, and efficiency associated with LAS can further contribute to its potential as a future-oriented loan option.
Furthermore, market trends usually indicate a growing demand for innovative financial solutions. As financial institutions may adapt to these changing dynamics, we can anticipate more tailored LAS offerings and enhanced services.
Things to Keep in Mind While Opting for Loan Against Securities and Personal Loan
It can be important to compare all of the factors involved before you decide which type of loan is right for you. Here are some things to keep in mind when deciding between a loan against securities vs personal loans:
Loan Against Securities(LAS)
- Value of Your Securities: The value of your security loan may determine the amount of money you can borrow. If the value of your securities falls, you may be required to repay more of the loan.
- Liquidity of Your Securities: The liquidity of your securities will determine how easily you can sell them if you need to repay the loan. If your securities are illiquid, you may have difficulty selling them to repay the loan.
- Risks Involved: There might be some risks involved in taking out a loan against securities. If the value of your securities falls, you may lose money on the loan. You may also have to sell your securities at a loss if you need to repay the loan.
Personal Loan
- Your Income: Your income will determine the amount of money you can borrow. You may need to have a steady income to repay the loan.
- Your Expenses: You should ensure that you can afford the monthly payments on the loan before applying for it. The monthly payments should not exceed a certain percentage of your income, as it may put a strain on your finances.
- Credit Score: Your credit score might affect the interest rate you are offered and the amount of money you can borrow.
- Risks Involved: There might be some risks involved in taking out a personal loan. If you default on the loan, you may have to pay late fees and interest charges, resulting in a drop in your credit score.
To Wrap It Up…
In conclusion, understanding the intricacies involved in either availing a loan against securities or a personal loan equips you with the knowledge necessary to make informed choices in fulfilling your financial needs. Therefore, it is important to evaluate your financial situation and requirements before deciding which type of loan is best suited for you. As always, please do your own research and/or consult a financial advisor before making any financial decision.
Frequently Asked Questions About LAS vs Personal Loans
Comparing a loan against securities to a personal loan depends on individual circumstances. A loan against securities can offer lower interest rates and faster approval times, but it requires you to pledge your securities as collateral. A personal loan may not require collateral, but it may have higher interest rates and longer approval times.
A loan against your equity investment can be a good idea if you have invested in stocks for the long run. This way you might not need to liquidate your investments and also be able to secure funds when needed.
A loan against property is a loan that is secured by a piece of property, such as a house or a car. However, personal loans are usually not secured by any collateral and is a loan that is secured based on your creditworthiness.
The loan against securities meaning is to enable borrowers to use their securities, including equities, mutual funds, fixed-income securities, ETFs, and insurance policies. These securities are held as collateral to secure funds from a lender.
This completely depends on the borrower. Borrowers with sufficient investments in mutual funds may find it more beneficial to get a loan against those MFs, instead of getting an unsecured personal loan. However, the lack of investments leaves borrowers with the option of personal loans.
All About Loan Against Securities & Loan Against Mutual Funds on smallcase –
smallcase offers quick and easy disbursement of loans against securities ( LAMF), all about eligibility, documents, features and benefits of Loan against mutual funds and the process for applying for loan is just one click away –
