What is the Best Alternative to a Personal Loan?

What is the Best Alternative to a Personal Loan?

Last Updated : July 16, 2020, 5:10 p.m.

When you are in an extreme need for cash, the easiest option for you is to take a personal loan. You can get the loan without any collateral if you have a good income and credit history. The loan can be used for various purposes such as wedding, education, travel, medical emergency, etc. But if your credit score is below 700, lenders might deny you a personal loan. Don’t get disappointed as there are suitable alternatives to a personal loan. These are secured loans that you get after providing collateral to the lender. The best part is that interest rates are lower compared to personal loans . Without any further delay, let’s check out such alternatives in this post.

Gold Loan

Financial advisers may suggest gold loans over a personal loan because of their lower interest rates. Interest rates on gold loans depend upon the value of your gold provided as security to banks and the amount you borrow. The higher the gold value, the lower will be the interest rates offered on gold loans. Gold loans are disbursed at around 65%-90% of the value of the ornaments. Also, the loan is disbursed to your account quicker than a normal personal loan. Lenders take two to seven days to disburse personal loans. Whereas, gold loans are disbursed the same day of the loan application. So, you can borrow money against your gold ornament at an attractive interest rate. See the table below to know which lender provides you the best gold loan interest rates.

Banks/NBFCsInterest Rate (In Per Annum)
State Bank of India (SBI)7.50%
Axis Bank13.00%
Kotak Mahindra Bank10.50% - 17.00%
Manappuram Finance12.00% - 29.00%
Muthoot Finance12.00% - 27.00%
HDFC Bank9.50% - 17.55%
ICICI Bank10.00% - 19.76%
Canara Bank7.65%
YES BANK9.00% - 15.00%
Union Bank of India7.00% - 9.60%
Federal Bank8.50% Onwards

Home Improvement Loan

If you want to plan a home renovation then it’s a good idea to maintain the house health. But you must be thinking about which loan you should apply for a personal loan or a home improvement loan? The maximum tenure is normally 10-15 years and the interest rate ranges from 7.00%-8.00% per annum on home improvement loans. Personal loans are among the costliest credits available in the market, as their interest rates range between 10.99% and 24% per annum and the prepayment charges are also around 2%-5%of the principal outstanding.

Here in this table below, you can see the lenders which provide you home improvement loans in India at a lower interest rate compared to personal loans.

Banks/NBFCsInterest Rate (In Per Annum)
State Bank of India (SBI)9.15% - 11.30%
ICICI Bank9.00% - 10.05%
HDFC Limited8.50% - 9.40%
Bank of Baroda8.50% - 10.60%
PNB Housing Finance (PNBHFL)8.50% - 11.95%
LIC Housing Finance (LIC HFL)8.50% - 10.75%
Canara Bank8.85% - 11.25%

Loan Against Life Insurance Policy

The traditional insurance policy you have bought for your long-term financial security can also help you meet cash crunch too. An effective interest rate on loan against insurance policy has multiple benefits. The loan can be availed by pledging the insurance policies to the banks, which provide you a loan up to 90% of your surrender value. Interest rates offered on these loans range from 9.00%-13.00% per annum. But, remember you can borrow loans only against those policies for which you have regularly paid the premiums for three years or more. The repayment duration might differ from lender to lender. In the case of some traditional policies, if you fail to pay the premium, the insurance policy will lapse.

Check out the table below to know which lenders provide loans against insurance policy in India.

Banks/NBFCsInterest Rate (In Per Annum)
HDFC Bank8.70%-12.35%
Tata Capital10.50% onwards
Fullerton India11.00%-18.00%
Axis Bank10.50%-12.75%
Kotak Mahindra Bank9.25%-13.00%

Loan Against Fixed Deposit

If you have a fixed deposit investment then it is the best alternative for your personal loan. You can borrow a loan against a fixed deposit in the form of an overdraft facility. This is an alternative in which you can use money without withdrawing money from your FD account. Banks lend up to 75% to 85% of the deposit amount as loans. The interest charged on loans against fixed deposits is 1% to 2% above your fixed deposit interest rates. This means that if the deposit was earning an interest of 5% then the loan you borrow against it will have an interest rate of 6% to 8%. You need to pay the loan amount before the maturity of the deposit.

Loan Against Property

If you have a property in your name, you can borrow a loan against property (LAP). It gives you better rates and longer tenures than a personal loan. Being a secured loan, the interest rates on LAP are usually low and can be anywhere between 11% to 16%. In comparison, interest rates on personal loans can be up to 24%. LAP is a secured loan where your property is mortgaged against the loan amount. It can be a residential property, commercial property, or even a piece of land. There is no restriction on using the proceeds of a LAP. You can use the LAP as the same as the personal loan to meet your financial needs like wedding, education, big purchase, medical needs, etc.

Banks/NBFCsInterest Rate (In Per Annum)
SBI7.00% - 7.70%
HDFC Limited8.75% - 10.40%
LIC Housing Finance9.50% - 10.50%
Axis Bank10.50% - 11.25%
Kotak Mahindra Bank9.50% - 11.70%
YES BANK12.00% - 16.00%
ICICI Bank8.35% - 9.50%
PNB Housing Finance7.99% - 10.50%

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