Assets against which you can take out a loan
As soon as we start gaining and earning the wings of financial independence, we are often advised to focus on building assets, like real estate, gold, etc.
While assets are generally considered synonymous with the word investment, While you aim to generate good returns and/or liquidate them profitably, there is another lesser known facet of asset ownership, i.e. loans.
Whenever you need funds due to financial hardship or life requirement, you can take out a loan against an asset. This will not only prevent you from losing ownership of the asset (unless you default on the loan, which would have been the case if you had liquidated that asset by sale or redemption), but will also act as another loan when you are denied other loans, such as a personal loan.
Wanting to know such assets that can earn you a to lend and bail you out of monetary shortfalls? Read on as we unfold them.
Also read: Does it make sense for millennials to apply for a home loan in their twenties
The brilliance of gold shines in many homes in India, doesn’t it?
There is no doubt that gold is one of our country’s most valued assets. Whether the reason is purely an investment or due to the widespread tradition and culture relating to gold, many Indian households tend to have a preference for it. glittering trump.
And this relatively massive presence of this asset in our country makes borrowing against it a fairly common practice across the country for those with substantial gold to pledge.
Key features of Gold Loan include fast disbursements, short repayment tenure usually up to three years, LTV ratio up to 75% and flexible repayment options apart from the usual EMI option, like bullet repayment option, upfront interest payment option, etc. Such flexibility in repayment often proves useful for those with irregular incomes or who prefer non-EMI options for gold loan repayment.
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2. Securities such as stocks, mutual funds, insurance policies, etc.
Investors and policyholders are most often unaware of the securities lending facilityin which borrowers can avail a loan against the collateral they hold, instead of redeeming it.
This is particularly useful in the case of market-related securities such as mutual funds, bonds, stocks, etc., in which you can suffer losses if you need the funds and buy them back when your portfolio bleeds out. Red.
Many financial institutions provide securities lending, including the pledge of bonds, stocks, ETFs, mutual funds, NSCs, life insurance policies, KVPs, and more.
Are you wondering about the interest or yield of the security? Don’t worry, your securities continue to earn interest and you continue to receive credit for interest, dividends, bonuses, etc., if any, on the pledged collateral. Regarding the amount of the loan, it depends on the type of security given as collateral and the LTV ratio (Loan to value ratio) assigned by the lender for this security.
Also keep in mind that this loan option is usually offered as an overdraft facility with a sanctioned credit limit, which implies that the borrower is free to withdraw all or part of the sanctioned limit. according to the respective funding needs of the different borrowers.
Accordingly, interest is charged based on the amount withdrawn and not the total sanctioned limit, and charged until repayment is made.
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3. Fixed deposit
Another popular investment instrument in our country is a bank fixed deposit. While most FD investors are aware of the Partial Withdrawal/Close facility to help in times of financial shortfall, few might be aware of the Loan vs. FD feature.
Yes, instead of breaking your FD prematurely, for which banks tend to charge a premature withdrawal penalty in most cases, you can take out a loan on your FD, while your bank FD continues to earn interest during the deposit period.
Like securities loans, most lenders usually offer a loan against an FD in the form of an overdraft facility, so as a depositor you are only required to pay interest on the amount used from the sanctioned limit, and is billed until it is reimbursed. You can qualify for a loan of around 85% to 95% of the amount of the bank FD, with interest rates usually around 1% to 2% higher than the contract rate of the FD pledged as collateral.
Quite naturally, the duration of the loan against FD depends on the residual duration of the FD pledged, in addition to taking into account any particular minimum and maximum duration limits of any bank, if applicable.
Read also : Frequently Asked (Un)asked Questions – What are the risks of investing in “safe” bank FDs
Also read: Does it make sense to buy a house or rent one?
When hearing ownership and loan, the first thing that comes to mind is home loan, to the right? But no, we are not talking about a home loan here. A home loan is when a lender helps you buy a property you want to own, by availing a home loan from the bank or HFC.
But here, we are talking about loans on property (LAP). You take out a loan against an asset you already own (i.e. a property), whenever a monetary need arises, especially a large bill. LAP is offered by many lenders against property types such as residential, commercial and industrial. Some even offer it against plot/land.
The loan amount for the LAP would depend on the market value of the property and the LTV ratio offered by the financial institution, which is usually around 50% to 75%. In terms of tenure, the LAP can usually be paid off in 15 to 20 years.
So for homeowners who need funds due to a financial shortfall, especially a relatively large budget that might not be met by a personal loan or other loans, or simply cannot or cannot If you don’t want to take this route as a loan option, LAP can prove to be a helping hand. Additionally, there are no restrictions on the end use of the funds (except for speculative purposes). So you are free to use it for personal purposes like child marriage or higher education, or for business purposes like working capital.
When it comes to pledging property for funds, another loan facility is the Reverse Mortgage Facility, which is specially designed for senior citizens in need of funds. You can read about it in detail in this article.
Apart from these assets against which you can take a loan when needed, few lenders in India also offer the facility of loan against carin which you can benefit from funds by committing your car. Depending on the market value of your vehicle, a percentage of it will be offered to you as a loan to meet your financial needs.
Plus, if you have a credit card, you can get the super benefit of a credit card loan. Click here to learn more in this article.
Read also : Is it wise to buy a house or rent one?
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