scorecardresearchHow do you decide between a personal loan and debt sought against securities?

How do you decide between a personal loan and debt sought against securities? We explain

Updated: 25 May 2023, 08:39 AM IST
TL;DR.

A personal loan sought is different from taking out a loan on securities – that one is unsecured and the other is secured by collateral explains the stark distinction between their availability and interest rates.

How do you choose between a personal loan and loan against securities?

How do you choose between a personal loan and loan against securities?

Loan interest rates are at an unprecedented high forcing many people to rethink their loan application plans. Personal loans cost more being unsecured, thus, prompting many borrowers to opt for loans that demand collateral. 

One good option is to seek a loan against securities, though many are unsure of the difference between the two. Borrowers often find it difficult to decide which of these investment options would suit them best.

Deciding between a personal loan and a loan against securities

Before we jump into the intricacies of each kind of loan and how you may distinguish between the two, let us understand what both these kinds of loans entail and how they are different from each other.

To start with, the approval of a personal loan application has a lot to do with the borrower’s creditworthiness. A lot depends on his or her income too as lenders gauge the ability to repay based on the borrower’s income. Today’s generation considers this as a perfect tool when they need money quickly but don't want to put up any assets as collateral. They can be utilized to pay for myriad objectives including medical crises, weddings, travel, education, and so on.

Now, compare this with a loan sought against securities such as stocks, mutual funds, bonds, etc. Being a secured loan, the interest rates are obviously lower. How much loan amount would be approved would, in large, depend on the value of the securities submitted as collateral apart from the borrower’s credit history and income levels.

Finally, the decision between a personal loan and a loan against securities is based on your unique financial needs as well as the terms and circumstances of each loan. A personal loan may be a better alternative if you need a little amount of money for a short period of time and have a decent credit score.

A loan against securities, on the other hand, may be a better option if you need a large sum of money for a lengthy period of time and are comfortable pledging your securities as collateral. Before making a decision, it is critical to examine interest rates, loan terms, and conditions.

 

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First Published: 25 May 2023, 08:39 AM IST