In case you needed money for some emergency you only knew the traditional ways of taking loans like Personal loans or finance on your house or property, financing on the vehicle, taking loans from relatives or friends, etc. But many of your investments can be used to avail funds. These are called loanable investments. Let’s see which of the investments is loanable and which are not.
Loanable investments help you in saving time on paperwork and arranging collateral. They are investments hence have valuation. So, it is easy to loan an asset.
There are a lot of disadvantages of taking loans in traditional ways like – they are time-consuming, costly (in terms of processing and interest rate).
But the world has changed, so as are the financing ways, now people can loan money without tying up their physical properties.
As their investments can be used in granting them loans at a lower interest rate and the process takes place in no time. So, being loanble is a property of investments or a feature you can use.
Some of the ways by which we can take loans on Loanable Investments are:-
Fixed Deposit (FDs)
Fixed Deposits or FDs are the most common Loanable Investments. You would say it is for business people. No, you can use a normal investment FD of any bank or reputed institution and avail yourself of a loan. These are given by banks & NBFCs.
Its interest rate is very low compared to other alternatives. These ranges from 6-9%. You may avail loans up to 90% of your FDs value.
One more advantage of a loan on FD is that there is no repayment tenure of FD. Usually, this is till the maturity of FD or usually not more than 5 years). The FD is lined in favor of the finance. This means the financer will have the right to first payment of maturity or interest and not you until the loan is repaid.
Insurance Policy
All new policies of Life Insurance and the traditional policies or the policies where 3 premiums are paid are eligible for loans.
The Investor can get a loan up to 80-90% of the policy’s value and its interest rate ranges from 9-12%.
These loans are provided by Insurance companies themselves or by Banks & NBFCs.
Mutual Funds
MFs are also a good option for getting a secured loan as the person can get about 60-70% of the fund’s value and the interest rate that will be charged upon him will lie between 10-12%.
Mutual Fund is good for taking loan for a longer time period or intervals as investments are also for a longer time.
The rate of financing can range between banks. It is usually 9% to 11% range.
The process is a bit long as you need to contact the MF office or Registrar for Leining the units. Once they do so in favor of the financer, the financer will loan you the money.
For debt funds, you can get up to 90% of the loan and on equity up to 50% of valuation.
Public Provident Fund
Public Provident Scheme is basically an long term investment of individuals those who wish for low risk and steady Investment . It is a central government saving scheme in which individuals can get up to 25% of their balance of a particular year.
Liquidity is offered in the form of loans against the PPF from the third year and withdrawals are subject to conditions from the seventh year.
Loans against the PPF are available from the third year of opening the account to the sixth year, wherein the loan amount will be up to a maximum of 25 percent of the balance in the account at the end of the first financial year. However, the loan has to be repaid with interest within 36 months. For loans, the interest rate is two percent per annum.
Bonds
It is a financial instrument in which an Investor gives loan to Borrower against some collateral.
The loan is given to an extent of about 60-90% of the total value of bonds against the interest rate which lies between 6%-15%. The rate also varies as per bond issuer rating.
Sometimes, the bond issuer can finance the bond or it is usually done by banks & NBFCs.
Shares
A share is basically a unit of ownership of Investors in the company which is obtained in exchange for capital.
Shares can also be used for granting loans as they are also good Loanable Investments. Most brokers who provide you with demat & trading facilities can finance the borrower.
We can easily get loans of about 50-70% of the value of shares.
The interest rate charged upon shares loan will also be the same rate as mutual funds which is between 10-22% which is in general a high-interest rate.
The time period granted for repayment of this monetary loan is from days to 36 months (3 years) as it caters for both short-term and long-term needs.
The process of taking a loan on Loanable Investment
The loan on Loanable Investments can be taken on both modes like online and offline. In both modes line marking is required, which is done by financial institutions. KYC & Application forms, and personal details needed to be filled the forms.
Banks open a current account for the person who wants to take the loan, then after the application is submitted and the loan will be granted within a week.
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