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Emergency Loan – Comparison of various options
And, we all love the word ‘Loan'. There are people who feel loans have been designed especially for them and that they are never a burden.
When we know that uncertainties are definitely certain in our lives, why not prepare for them instead of carrying a debt on the shoulders? However, I agree that there are cases where we are caught unaware and look for help. Let us now compare the different loan options available in an emergency situation.
Securitized Debt:
The name says it all. It is a form of loan where a security/collateral needs to be kept with the bank in order to obtain a loan. The loan options in this category would be the following -
1) Gold loans - Gold has been a traditional favorite for most of us. We just love buying it, be it for Marriage or for Investment. Some of the idle gold can be used to get an emergency loan. Leading banks such as HDFC Bank offer gold loans for decent interest rates. One can get up to 60% on the value of Gold.
2) Loan against Securities - We would have bought a lot of securities for investment such as Insurance, PPF, FD's, Shares, etc. Such securities can be pledged with the concerned institution to secure a loan. The amount of the loan would depend on the value of the security. Some of the securities such as PPF would be eligible for loans only after holding for a specified period.
3) Loan against Property - Properties can also be used to pledge in order to secure a loan. Loans of up to 40-70% of value the property can be obtained. The tenure of such loans is usually 10-15 years, which is slightly higher than other loans. These loans are useful when there is a higher amount needed.
Securitized debt is definitely cheaper. However, in case of default, the security pledged would be at risk of loss of ownership.
Unsecuritized Debt:
It is the other form of debt i.e. getting a loan without pledging any security/collateral. The options available here would be -
1)Personal loans This is a very popular form of an emergency loan. The reason being that it is easy, fast and hassle free. It can even be bought by a click of a button online since it doesn't need any security or property to be pledged.
2) Credit cards - They are the ‘Ready to use' form of emergency loan. And it's pretty easy to get a credit card these days. Using a credit card is also good to build a good credit score. However, using only a credit card would not make you a good borrower. Also, make sure that you clear all dues within time and do not keep paying just the minimum amount every month.
Conclusion:
It's important to know the purpose of taking a loan. Do a due comparison of aspects such as interest rates, processing fees, prepayment penalties, etc. before applying for an emergency loan. Many of the loans are negotiable, especially if they are backed by collaterals. Finally, the most important thing is to be able to save for the rainy day. Emergencies are inevitable and should be prepared for.
