Introduction
A personal loan is a type of loan taken by the individuals seeking funds to fill the gaps between their income and expenses. However, not in all cases is the personal loan a debt consolidation. A personal loan can be taken out for various other purposes such as marriage, vacation, house renovation, etc. Since personal loans are the type of loans that are basic in nature to fund all personal expenses, these are one of the popular choices among investors.
Personal loans are also easier to acquire and are quicker than other loan types, with access to money as fast as a few minutes to hours upon approvals. Moreover, even if personal loan interest rates are not necessarily high, they are a toll on borrowers with poor credit. That is, the personal loan rates vary with the creditworthiness of the applicant and may hike depending on his credit dents. The borrowing amount will also be limited as the lender will not be able to trust an applicant with a poor credit. However, there are alternatives such as finding a co-applicant or opting for a secured loan in such cases.
If you are someone looking for alternatives to a personal loan, this article is for you. Read to know what alternatives to personal loans serve better and why.
10 Personal Loan Alternatives
Personal Loan Alternative #1 Line Of Credit (LOC)
LOC, also known as line of credit, is an unsecured revolving credit limit. Unlike term loan or a personal loan, LOC provides funds that can be used, repaid, and used again. Simply put, LOC is an open-ended arrangement, a secured or unsecured fund with no fixed installment amount that accumulates interest only on the amount utilized rather than the entirety of the principal amount deposited.
With a line of credit, the borrower may use funds as required and only repay for the funds utilized. This gives you capital when you need it without having to submit a new loan application everytime you need financing.
A line of credit need not only be for a personal purpose. Since the line of credit provides bigger funds, the line of credit is usually used for big ticket purchases or business purposes to run the organization smoothly even in off seasons without the risk of being short on funds. In such a case, a letter of credit is obtained by the borrower within a bank that agrees to make payments for the goods or shipments as within the agreement under specific conditions.
Personal Loan Alternative #2 Credit Card
A credit card is another unsecured revolving credit line that helps the issuer to use funds when needed and repay the funds on monthly terms. This type of mechanism allows individuals to cater to their everyday expenses easily without having to scourge their savings. Credit card is a household name among individuals from purchasing grocery to inventory, as needed. Credit hard however does not have any end-use restrictions but has a credit limit within which the holder can use the funds. If he may exceed the limit, he will be charged a penalty or may hurt his credit score, as decided by the creditor.
Although credit cards have several reward programmes and generous offers for their applicants, many individuals do not carry out more than 3 to 4 credit cards because of the risk of falling into debts if not used properly. That is, if the holder fails to use the credit card or the card is inactive for a reasonable period of time, the bank may cease your rights to the account and disable the rights to use credit, further risking credit ratings and finances altogether.
To avoid such a hassle, you can keep tabs on your credit utilization and maintain a minimal withdrawal limit below 10%, pay off outstanding debts on the credit, don’t close unused cards, and use credit card regularly even if for smaller amounts such as in a grocery store or for a commercial purchase, as needed.
| Factors | Credit Card | Debit Card |
| Purpose | Pay later product | Pay now product |
| Eligibility | Need to be fulfilled | No criteria |
| Interest | Yes, if charges are not paid on time. | No |
| Maximum Limit | Determined by creditworthiness of the borrower | A little less than your savings |
| Withdrawal | Anytime | Only if you have funds in bank |
| Debt Instrument | Yes | No |
| Credit Score Impact | Yes | No |
| Rewards | Discounts & Cashbacks | No |
Table 1 – Credit Card Vs Debit Card
Personal Loan Alternative #3 Loan Against Security
The borrower applying for a secured loan can submit a collateral in Bonds, Fixed deposits, Insurance, Debentures, or Equity shares, as he may wish to do so. Loan against security is such a loan that is alloted over submission of securities of up to 80% to 90% of the security market value. Customers with such deposits, bonds, insurances, etc can take advantage of this facility to acquire a loan quicker. When the borrower has repaid the loan in full with the acquired interest on the loan, their securities will thus be released to its original owner, that is the borrower with regained ownership rights.
However in cases of secured debts, the applicant may stand a chase to lose rights of the security submitted if he may default on the loan. That is, only if the borrower may fail to repay the loan even after multiple warnings from the creditors or penalties from the bank.
Therefore, if you even have missed a few payments on EMIs, you do not need to worry about losing your rights, until you have contacted the bank and informed them about your financial situation or why you have failed to pay your EMIs. This bond of transparency between the lender and the borrower will ensure that you will be informed in the future by the bank without them having to take a direct action with the lack of trust in the parties involved in exchange.
Personal Loan Alternative #4 LAP Loan
LAP or Loan against property is another type of collateral scheme where the borrower can submit a property or immovable asset(owned by him/co-applicant) such as a house or land as collateral against the loan acquired. The amount sanctioned on the LAP loans can be up to 80% of the property value with an added advantage of higher eligibility when the value of the property spikes.
The benefit of LAP loan is it is faster to acquire and is the most secured type of loan when the borrower applying for the loan has an asset. Mostly, if you are someone looking for higher loan amounts, LAP loans are advantageous considering the instant and higher funds at attractive interest rates, flexible tenors, and end to end facilitation services. As long as you are not using the funds acquired on these loans for any illegal or unsolicited purposes, your end-use on the loan is not demanded by the banks, thus can be used freely, as intended.
You can normally take out a LAP loan against your self-occupied or rented property, a house or a piece of land, with the same rules applicable as with all the secured loans. Your property is held lien by the creditors until you have repaid the loan in full with interest and can be retrieved in whole upon the closure of the contract.
Personal Loan Alternative #5 Loan Against Deposit
Gold, Fixed Deposits, Recurring Deposits, NRE, NRO Term, FCNR can be submitted as a security against the loan. If you are an NRI, you would have been familiar with the terms NRE, NRO, FCNR, as the accounts to access funds within India is only possible with such bank accounts, I.e before applying for a loan in India, NRI has to have a valid bank account in India. According to RBI (Reserve Bank Of India), NRO, NRE, and FCNR accounts are some of the valid repayment modes for NRI loan applicants.
Therefore, if you are a holder of any of those banking channels, or a holder of inactive gold, fixed deposits, etc, you can submit these to acquire funds up to 80% of the deposited asset under the existing market conditions. Gold loans are the most popular of this form among Indians as most residents of middle and above middle classes possess gold in the form of jewelry or bars in their lockers or at home.
In case of emergencies, gold loans come in handy, since the value of the loan is higher, faster, and easier to acquire. The banker or the lender issuing a gold loan will not check income or creditworthiness of the lender, rather will issue the loan on the purity of the gold deposited, hence is a popular option.
Such loans are taken out in case of emergencies, student expenses, educational purposes, etc.
Personal Loan Alternative #6 Loan Against Shares
Loan Against Shares (LAS) offers a similar criterion as LAP to bring forth instant funds against Demat account shares without selling them. LAS, unlike LAP, lets you make the most of your share market investments without compromising a most cherished physical asset as a liaison.
Additionally, the customer may avail of an overdraft facility of an undetermined value against the shares pledged. The limit value is therefore determined by the value of the share and is advanced to the customers at interest rates lower compared with personal loans.
LAS Process
Personal Loan Alternative #7 Loan Against PPF
PPF also known as public provident funds is also a secured type of loan that is availed against the submission of public provident funds as a collateral against capital requirement. These loans are typically repaid in 2 years to avail of another loan within the next years of opening the account. PPF loans have minimal documentation and paperwork, thus have instant approvals and quick disbursals without borrowers having to break provident funds.
Therefore all subscribers of public provident funds are eligible for these loans with no EMI pressure or prepayment penalties and fees. Thus they are considered cheaper than personal loans. However the repayment rules require the borrower to pay the interest in two to three installments after the principal amount has been repaid in 36 months of the application date.
Personal Loan Alternative #8 P2P Lending
P2P or peer to peer loan is similar to personal loans but are given out by multiple lenders rather than a single lender after they have qualified your application. However, P2P lending is a longer process compared to personal loans but can be of a generous interest compared to personal loan schemes depending on the lenders.
Most P2P lenders look for applicants with a decent credit score of above 700. Since you are not working with a direct lender, you are at a benefit of negotiating terms and conditions on your payment and are rather flexible to get better deals.
Personal Loan Alternative #9 Credit Union Loan
Credit union loans can be unsecured loans, however unlike banks, credit unions have a different set of requirements to process the loan. It is also known as a type of online personal loan that is flexible with their applicants, even with those with a bad credit score or poor credit rating. However, to access a credit union loan, you should be a member of the credit union for a considerate time prior to applying for the loan.
Personal Loan Alternative #10 Payday Loan
Payday loans are typically short-term financing options that allow salaried individuals short on cash to access funds easily. Also known as pay advance loan, you are meant to repay the loan in a short-term, as short as your next salary. Therefore, payday loans are a high risk but easy emergency loans that will allow you to have cash and repay once you have salary credited by the next payday.
Which Loan Is The Better Options
Whether you are taking out a personal loan, line of credit, credit card, loan against securities, mutual funds, deposits, etc, the better option depends on the why’s of your funds requirements. Although personal loans are a common option among investors, if you are someone with a different requirement as mentioned above, such as a big funding, short-term emergency financing, etc, you will have to take a different route that will make your journey smoother, hence the alternatives.
While secured loans are to get preferential rates on your loan amount, not everyone has a collateral, such as young business owners, students, etc, therefore the alternatives. There are choices of both secured and unsecured loans with better terms each, however the choice will depend on your requirement of money, income, creditworthiness, employment stability, emergencies, etc.
Final Word
If you are looking for capital assistance and need help, contact Loanz360 to get the loan at the best prices and deals instantly. Check out the eligibility criteria and documents required in the services section under a personal loan.
Your loan need not be a burden with Loanz360. Loanz360 is an authorized financial supermarket, with financial dealers across India. From management to the protection of assets, we provide all financial services to our local and international customers alike with the help of our in-house financial partners.
If you are still not sure how, give us a call at Loanz360 and schedule a meeting with our representative, who will take you through the process of buying and financing a loan, along with comparing the market rates and finding the best deals that fit your pocket with discounted offers and flexible services.
