Loan Against Securities vs. Personal Loan: Which is the Better Choice for You?

Posted on Thursday, October 24th, 2024 | By IndusInd Bank

In today’s age, as the need for financing options has risen, so has the number of loan options available within the market. Banks now provide a variety of loans to cater to customers’ diverse needs and preferences. Two options you may have encountered when looking for a loan are personal loans and loans against securities. While the latter allows you to leverage your existing investments for credit, a personal loan provides unsecured funds based on your creditworthiness. 

Are you wondering which one is the right choice for your needs? Here’s a guide to help you. 

What is a Loan Against Security?

• A loan against securities is a type of secured loan where you can borrow money by pledging your financial assets. You can pledge stocks, bonds, mutual funds, insurance policies, or other assets as collateral. 

• With a loan against securities, you can use your investment’s potential without liquidating them. However, you must remember that the bank will hold these securities until you fully repay the loan. 

• You will probably enjoy lower interest rates for loans against securities. This is because the lender has collateral to fall back on in case of default.

What is a Personal Loan?

• A personal loan is an unsecured loan where you do not have to provide any collateral.

• You can utilise the funds from a personal loan for various personal financial needs. Whether you want to pay for an urgent medical emergency or renovate your home, a personal loan can come to your rescue. 

• Instead of collateral, banks assess the applicant’s loan eligibility. This is done based on the applicant’s credit history, income, and ability to repay. 

• As compared to a secured loan, you will probably incur a higher personal loan interest rate. However, the interest rate can also depend on credit score, income stability, and more. 

Main Differences Between Loan Against Securities and Personal Loan

There are several key differences between both:

1. Collateral Requirement

A loan against securities requires you to pledge financial assets as collateral. A personal loan does not have any such requirement.

2. Interest Rates

Loan against securities interest rates tend to be lower because the loan is secured. On the other hand, personal loan interest rates are higher because of the unsecured nature of the loan.

3. Loan Amount

The loan amount for a loan against securities can be a percentage of the value of the pledged assets. This can limit the amount you can borrow. In contrast, the loan amount for a personal loan is based on your creditworthiness and income. 

4. Usage of Funds

Both loans offer flexibility in the usage of funds. However, personal loans are more often used for immediate personal expenses. On the other hand, loans against securities might be used by those in need of funds but looking to maintain their investment portfolio. 

How to Decide Between Loan Against Securities vs. Personal Loan?

To make the right choice between a loan against securities and a personal loan, consider the following points:

1. Consider Your Assets

A loan against securities might be a better option if you have a strong portfolio and you do not want to liquidate it. With a loan for securities, you can access funds while keeping your investments intact.

2. Compare Interest Rates

Since loan against securities interest rates are lower, it could be more cost-effective if you have assets to pledge. However, a personal loan can help keep your assets lien-free. 

3. Assess Your Needs

If you need funds for large, immediate expenses, you might want to consider a personal loan. To plan the loan’s repayment with care, you can use the Personal Loan EMI Calculator from IndusInd Bank. This will help you understand the repayment structure and ensure it fits within your budget.

4. Risk Tolerance

If you are risk-averse and prefer not to tie up your assets, a personal loan is safer. However, a loan against securities is suitable if you are comfortable using your securities as collateral.

Also Read: How Personal Loan EMI Calculators Fuel Your Financial Strategy?

Conclusion

Understanding your financial situation, goals, and risk tolerance is crucial for making the right choice. Opting for a suitable loan can help you meet your financial needs the right way. 

If you have finalised your choice as a Personal Loan, consider applying for one with IndusInd Bank. Whether you are looking for competitive personal loan interest rates, flexible repayment options, a simple application process and instant disbursal, or more, IndusInd Bank has a wide range of feature-rich Personal Loan options to choose from. 

Apply now for an Instant Personal Loan with IndusInd Bank today! 

Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.