There are moments in life when you can be suddenly met with unexpected expenses and urgently need cash but not everyone has enough liquid cash available at all times. This happens because most people have investments in the form of mutual funds or shares or property. Under stressful conditions, people end up resorting to loans from banking or non-banking financial institutions like a loan against investments or property. Let’s see what each of these mean and how they can prove beneficial for you.
What Are Loans Against Securities (LAS)?
A loan against securities is taken against listed investments like mutual funds, equity shares, life insurance policies, etc. It can be availed by people who urgently need fast liquid cash. In this category of loan, your investments are mortgaged against the loan and are held custody by the lender, until the loan is repaid. It is one of the best ways to make your investments work harder and smarter for you.
What Are Loans Against Properties (LAP)?
A loan against property is a secured loan that is sanctioned to you after keeping an asset you own as a mortgage with the lender. This asset can either by an owned land, a house or any commercial property in your name. This asset remains as collateral with the lender until the loaned amount is repaid.
Here are some points that show the similarities and differences between the two loans to help you choose the better one among them.
Both loans belong in the secured loans segment and need collaterals for approval. In LAP, you pledge a property that you own, whereas, in LAS, you pledge your investments like mutual funds, life insurance policies or equity shares or bonds.
The tenure of a LAP is set by the lender. Most lenders offer tenures as long as 15 years. On the other hand, in loan against securities, in case you pledge your stock market assets, lenders can offer you a tenure as low as 1 year which you can extend by paying charges.
If you are looking for an easy documentation process, you can opt for a loan against security. For such loans, lenders will ask for minimal documents like KYC, security’s latest report and the lien document. On the other hand, the documents requirement list for a loan against property is quite lengthy and all documents should be in proper condition.
Both loans have interest rates that are vastly different. While a loan against Property interest rate 12% – 15% per annum, a loan against property comes with 13% – 17%. A lower tenure on a loan against securities would mean you save a lot of money on interest payable.
Based on these points and assets that you own, you can decide what works best for you and go ahead and select one.