Secured loans give borrowers the option to get funds without worrying about selling their assets or changing their key financial plans and goals. Secured loans give borrowers the required loan amount to carry out their financial needs and also carry lower credit risk for lenders, as lenders have the benefit of selling the pledged or mortgaged securities if the borrower defaults on loan payment. 

Since these loans are low credit risk, lenders offer relaxed eligibility criteria on these loans. Additionally, the rate of interest of secured loans is also lower compared to unsecured loans. 

So, are you in need of cash to meet emergency expenditures? Let us explore the best four secured loan options available at a low rate of interest which would be beneficial for you.

Top Secured Loans in India to Meet Emergency Cash Needs

  • Loan against Securities

Loan against securities is available against your bonds, shares, mutual funds, NSC, life insurance policies, etc. The key benefit of going for a loan against securities is that the borrower would still keep on receiving the interest, dividends, bonuses, etc. on such pledged securities, during the tenure of the loan availed. 

The amount of loan provided would depend on the lender’s risk assessment of these securities which have been pledged as collateral, and the cap on LTV ratio provided by RBI for such securities. A loan against securities is normally an overdraft facility that comes with a sanctioned credit limit, wherein, the borrower gets the option to take out the full sanctioned amount to meet their needs. 

The interest on such loans is considered for the date of the amount drawn till the total repayment of such loan. Though the borrower has to repay the interest portion every month, with respect to the principal amount, they have the option to repay it as per their cash flow till the overdraft tenure is available. There is no prepayment charge levied. 

This type of loan is thus quite popular. However, any fall in the market value of pledged securities would lead to the borrower having to manage the gap in LTV ratio requirements by either pledging more securities or by depositing money with the lender.

  • Gold Loan

Gold loan is one of the easily available loans which is also quickly disbursed. Lenders normally approve and sanction such loans within the same working day. Such loans are repaid within a period of three years but depending on lenders, the tenure could even extend to 4 to 5 years. 

The amount of loan is dependent on the value of the gold pledged and the LTV ratio sanctioned, as per the regulatory cap for gold LTV ratios prescribed by RBI. Borrowers availing of gold loan get repayment flexibility from their lenders where only interest portion could be paid upfront and principal amount at the end of the loan term. Borrowers can thus repay their loans even with uneven cash flows.

  • Loan against Property 

Loan against property (LAP) is another popular secured loan, wherein, the loan is sanctioned against property - residential, commercial and industrial properties. The sanctioned LAP would be equivalent to 50% to 70% of the pledged property’s market value, valued by lenders. 

LAP repayment term is normally for up to 15 years, though this could be extended to 20 years by some lenders. LAP entails a higher loan amount or longer loan tenure with small EMIs. It would benefit borrowers having huge financial requirements. However, if there are urgent financial requirements, then LAP may not be a feasible option as

disbursals normally take up to 2-3 weeks or even more. 

  • Top-up home loan

A top-up home loan is another option available to existing home loan borrowers who have a good credit history. Lenders provide a top-up home loan based on the difference between the home loan amount which was sanctioned originally and the loan amount which is still outstanding. 

It has to be noted that the top-up home loan term cannot exceed the residual tenure of the original home loan, though a maximum tenure cap of 15 years may be provided by some lenders. The interest rate is normally the same or a little higher than the original home loan. As such, this is one popular and cheap source of funding available for home loan borrowers. Disbursal time is a little lengthy, around 1-2 weeks, though lenders may provide same day disbursal to existing home loan borrowers with good repayment history.

Conclusion

The requirement for funds is an ongoing necessity that one encounters frequently. This does not mean that one should feel cash strapped as there are now good secured loan options as stated above, available at low-interest rates to meet your financial exigencies. 

FAQs

1. Can a person with a low credit score apply for a secured loan?

A person with a low credit score can apply for a secured loan as the lenders have the assurance of the pledged security of the borrower to fall back on, in case of default towards repayment of such secured loan.

2. Does the loan amount depend on the market value of pledged securities?

The loan against securities depends on the value of securities pledged. At any time, if there is a fall in the market value of such pledged securities, then the borrower has to make good the loss in the existing LTV ratio requirements, either by pledging in more securities or through the deposit of extra funds with the lender.

3. Are all borrowers eligible for gold loans?

To claim the benefit of a gold loan, it should be ensured that the person is the owner of such gold and it is in their possession at the time of availing the gold loan. All types of borrowers who fulfil this criterion irrespective of their credit score can avail of gold loans.

4. Can a top-up home loan be availed without having an ongoing home loan?

A top-up home loan can only be availed by existing home loan borrowers who have maintained a good repayment of their home loan history with the lender. Lenders consider such a category low risk and provide them with a top-up home loan.

5. For a loan against property, should the property be owned by the applicant?

Yes, for a loan against property, the property pledged should be owned or co-owned by the applicant. When it is co-owned, then the signature of all the owners is required to pledge the property to avail loan.