How do they score over personal loans?
One of the biggest reasons as to why loans against securities is a good alternative to personal loans is that the interest rates on them are usually 3% to 5% lower than interest rates on personal loans. Currently, these loans can be availed from public or private sector lenders at 12% to 14.50% rates of interest, which is lower than the existing personal loan rates which are in the range of 15% to 24%. In addition to this, for loans against securities interest is charged only on the amount actually drawn out and used by the borrower instead of on the entire loan amount sanctioned, as is the case in personal loans.
Also, as LAS is a secured loan, there is no need to have a guarantor for availing the loan.
Most lenders sanction amounts ranging from Rs. 2 lakh to Rs. 20 lakh and even up to Rs. 5 crore for certain securities like Kisan Vikas Patras, life insurance policies, bonds etc. Generally, banks lend up to 50% of the value of shares and up to 80% to 85 % value of the value of debt instruments.
Another ground where LAS scores over personal loans is that there is no prepayment penalty on loans against securities. The account is simply closed when the loan repayment is done and thus the borrower can get rid of the loan as fast as possible without having to bear the additional costs of foreclosure. These loans can be availed quickly as banks normally process and sanction them in two days time. Also, as with personal loans, lenders do not ask the reasons for taking loans on pledged securities and funds obtained through them can be used for any personal or business purpose.