In today’s financial landscape, borrowing options are vast and varied, catering to different needs and circumstances. Two popular choices for individuals seeking funds are Loan Against Shares (LAS) and Personal Loans. While both serve the purpose of providing liquidity, they operate on different principles and cater to varying financial profiles.This article delves into a detailed comparison to help you decide which is the best option that might be better suited to your needs.
Understanding Loan Against Shares (LAS)
A Loan Against Shares is a secured loan where you pledge your shares, mutual funds, or bonds as collateral. The lender provides a loan amount based on the value of the securities pledged. Typically, banks or financial institutions offer up to 50-60% of the market value of the pledged securities as a loan.
Key Features of Loan Against Shares:
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Collateral-Based: LAS is a secured loan, meaning you must pledge your shares or securities as collateral. The loan amount is directly linked to the value of the securities you own.
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Lower Interest Rates: Since it’s a secured loan, the interest rates on LAS are generally lower compared to unsecured personal loans. The rates can vary but are usually in the range of 10-15%.
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Flexible Repayment Options: Most loan against shares products offer flexible repayment terms, including the option to pay only the interest during the tenure and the principal at the end.
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Quick Processing: Given that the loan is secured, the approval and disbursement process is relatively quick, often within a few days.
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Market-Linked Risks: The value of the securities pledged can fluctuate with market conditions. If the value drops significantly, the lender may ask for additional collateral or partial repayment to cover the shortfall.
Understanding Personal Loans
Personal loans are unsecured loans provided based on the borrower’s creditworthiness, income, and financial history. Since no collateral is required, the risk for lenders is higher, leading to higher interest rates compared to secured loans like a loan against shares.
Key Features of Personal Loans:
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No Collateral Required: Personal loans are unsecured, meaning you do not need to pledge any assets to secure the loan.
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Higher Interest Rates: Due to the unsecured nature, personal loans typically come with higher interest rates, ranging from 12-24% depending on your credit score and income stability.
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Fixed Repayment Schedule: Personal loans usually have a fixed EMI schedule, which can make budgeting easier. The tenure can range from 1 to 5 years, depending on the loan amount and the lender’s policies.
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Quick Approval: Many lenders offer instant personal loans, especially to pre-approved customers, making the disbursement process swift, often within hours or a day.
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No Impact of Market Fluctuations: Since personal loans are not tied to any market-linked securities, they are not affected by market conditions.
Comparing Loan Against Shares with Personal Loans
When deciding between a Loan Against Shares and a Personal Loan, several factors come into play, including the purpose of the loan, your financial situation, and your risk tolerance.
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Interest Rates:
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LAS: Generally offers lower interest rates due to the secured nature of the loan. This can lead to significant savings in interest costs over the loan tenure.
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Personal Loans: Higher interest rates are common, making them more expensive over the long term.
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Loan Amount:
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LAS: The loan amount is dependent on the value of the shares or securities you pledge. If you have a substantial portfolio, you can borrow a larger amount.
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Personal Loans: The loan amount is determined by your income, credit score, and repayment capacity. It may not be as high as a loan against shares if your credit profile is average.
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Repayment Flexibility:
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LAS: Offers greater flexibility with options like paying only interest during the tenure and the principal at the end. This can ease the burden of monthly repayments.
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Personal Loans: Comes with a fixed EMI structure, which can be rigid, although it provides predictability in budgeting.
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Risk Factor:
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LAS: Your shares or securities are at risk. If the market value drops, you may need to provide additional collateral or repay part of the loan prematurely.
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Personal Loans: There is no risk to your assets since the loan is unsecured. However, defaulting can severely impact your credit score and future borrowing capacity.
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Processing Time:
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LAS: Generally fast, but it depends on the valuation of the securities and the completion of paperwork. The process can take a few days.
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Personal Loans: This can be extremely quick, especially with online lenders offering instant disbursement.
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Eligibility and Accessibility:
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LAS: Requires you to have a sufficient portfolio of shares or securities. If your investments are tied up or not substantial, this option may not be feasible.
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Personal Loans: More accessible to a wider audience, including those without significant investments. However, a good credit score is usually essential.
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Which One is Better?
The choice between a Loan Against Shares and a Personal Loan ultimately depends on your financial needs and situation.
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Loan Against Shares is better if you have a robust portfolio and are looking for a lower interest rate with flexible repayment options. It’s ideal for those who are confident in the stability of their investments and can manage the risk of market fluctuations.
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Personal Loans are preferable if you need quick access to funds without any collateral or if you don’t have a significant investment portfolio. They are also suited for those who prefer fixed EMIs and want to avoid the risk associated with market-linked securities.
In conclusion,you can get Loan Against Shares at an attractive interest rate with highest LTV from Abhi Loans. That can help you assess your financial goals, risk appetite, and fulfill the urgency of funds and help you make the right choice.