Festivals bring their cheer to Indian households. But in sprucing up the home and wardrobe for festivities, the family budget goes askew.<\/p>\n
If you are looking for support through loans to avoid dimming the festival lights, then loans against assets \u2013 fixed deposits<\/a>, gold, shares, insurance, mutual funds, or property are often available at a lower interest rate compared to collateral-free personal loans.<\/a><\/p>\n The interest rate applicable to loans against securities or assets would be 10-12% per annum; however, unsecured personal loans would be available at an interest rate of 14-18% per annum.<\/p>\n \u201cLoans against assets are available at a lower rate of interest than unsecured personal loans and are therefore preferred. Also, loans against assets are available in an overdraft form rather than a term loan, where interest is charged only on the amount outstanding, reducing the effective cost of funds,\u201d says Vishal Dhawan, co-founder of investment advisory Plan Ahead Wealth Advisors.<\/p>\n The entire value of the asset cannot be borrowed, as banks and financial institutions leave room for changes in the valuation of these assets to safeguard themselves.<\/p>\n If you are considering borrowing against the assets, it helps to know how much one can borrow against the value of these assets. The percentage of the asset’s value available for borrowing is called loan-to-value.<\/p>\n While the regulators for all financial and non-financial assets are different, the values set for borrowing against them is usually dictated by the Reserve Bank of India.<\/p>\n Also Read<\/strong> | 4 smart steps to boost your personal loan approval chances<\/a><\/p>\n Asset\u00a0<\/p>\n Interest (%)<\/p>\n Remarks\u00a0<\/p>\n Loan to value (%)\u00a0<\/p>\n<\/tr>\n Property<\/p>\n<\/td>\n 9-10.75<\/p>\n<\/td>\n 40-80<\/p>\n<\/td>\n<\/tr>\n Gold\u00a0<\/p>\n<\/td>\n 9-9.5<\/p>\n<\/td>\n Banks offer loans above \u20b92 lakh only\u00a0<\/p>\n<\/td>\n 90 including interest<\/p>\n<\/td>\n<\/tr>\n Mutual funds\u00a0<\/p>\n<\/td>\n 8.9-11.25<\/p>\n<\/td>\n Equity – upto \u20b920 Lakhs\u00a0<\/p>\n Debt \u2013 no limit<\/p>\n<\/td>\n 50 (Equity) –<\/p>\n 80 (Debt) of NAV<\/p>\n<\/td>\n<\/tr>\n Shares<\/p>\n<\/td>\n 9-10.5<\/p>\n<\/td>\n Maximum 20 lakh<\/p>\n<\/td>\n 50<\/p>\n<\/td>\n<\/tr>\n Life insurance\u00a0<\/p>\n<\/td>\n 10.5-11.25<\/p>\n<\/td>\n Assignment offered to the bank\/ financial institution<\/p>\n<\/td>\n 80 of surrender value<\/p>\n<\/td>\n<\/tr>\n Loan against security – Sovereign Gold Bonds (SGB)<\/p>\n<\/td>\n 10.75<\/p>\n<\/td>\n \u20b90.25 lakhs upto Rs. 1 Crores<\/p>\n<\/td>\n 60-75<\/p>\n<\/td>\n<\/tr>\n Kisan Vikas Patra\/ National Savings Certificate\u00a0<\/p>\n<\/td>\n 11.25<\/p>\n<\/td>\n 70 of present value<\/p>\n<\/td>\n<\/tr>\n Fixed deposits<\/p>\n<\/td>\n +1 of the deposit rate<\/p>\n<\/td>\n Tenure available until FD maturity (upto to 1 Crore)<\/p>\n<\/td>\n 90 of principle<\/p>\n<\/td>\n<\/tr>\n (Source: RBI)<\/p>\n Financial assets<\/strong><\/p>\n With tariff discussions affecting stock markets globally, it is not the right time to sell shares and equity mutual fund units. But you can consider borrowing against these assets.<\/p>\n Selling assets also means additional outgo in terms of taxes. \u201cThere could be capital gains – long-term or short-term payable in case of an exit, which could be higher than acquiring a short-term overdraft facility. One may need to evaluate the better option among selling, taking a loan, versus tax payable for exit, exit load (if any), rate of interest for the tenor,\u201d says Dhawan.<\/p>\n But since these are volatile assets, the loan is available only upto half of the current value of the stocks or equity fund units.<\/p>\n Apart from shares and mutual funds<\/a>, one can source a loan against fixed deposit, life insurance policies, even small savings like National Savings Certificate and Kisan Vikas Patra.<\/p>\n But the amount one can borrow against these differs (refer table 1). About 80-90% of the debt mutual funds and fixed deposits are available for borrowing.<\/p>\n Also Read<\/strong> | Should you take personal loan for investment or consumption? Explained<\/a>Non-financial assets<\/p>\n Apart from financial assets, physical assets such as property or gold <\/a>are also available to borrow against.<\/p>\n Loan against property is for larger needs, and one can seek upto 75-80% of the property as a loan.<\/p>\n Earlier, the loan-to-value ratio for gold was about 70%, but the Reserve Bank of India has expanded it to 90% now. So, if you owned \u20b94 lakh worth of gold, one could earlier borrow only upto Rs<\/p>\n However, banks are including the interest and the asset value to consider the LTV on gold loans. Hence, the entire asset value in the totem isn\u2019t available for borrowers.<\/p>\n \u201cBanks offer a loan only above \u20b92 lakh, and if we look at the quantum of gold loans, then they are smaller ticket loans. Hence, the tendency to head to a non-banking financial company or an unorganised player such as a pawn shop for gold loans is higher after the new regulations,\u201d says Shard Ingle, founder of erstwhile Gold Uno.<\/p>\n\n \n \n \n \u00a0<\/td>\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \u00a0<\/td>\n \n \n \n \n \n \n