Cheapest Loan Options In India – Gold, Mutual Fund, Personal Or Credit Card?
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The festive season often brings extra expenses, and for many, borrowing money becomes an option. Choosing the right loan type is crucial to avoid unnecessary costs and debt traps. The general rule remains the same: borrow only when necessary, and select the most affordable option with a clear repayment plan.
Secured loans, such as those against mutual funds or gold, typically offer lower interest rates compared to unsecured personal loans or credit card borrowing. While credit cards and personal loans provide convenience and attractive festive offers, they often come with higher interest rates and stricter repayment terms.
Loans Against Mutual Funds
Investors who hold shares or mutual funds but prefer not to redeem them can pledge these assets as collateral. Such loans are processed quickly, require minimal documentation, and usually have lower interest rates than personal loans or credit card borrowing. The loan-to-value (LTV) ratio varies: for equity mutual funds, it is around 50–70 per cent, while for debt funds, it can reach 80 per cent. However, if market values fall, borrowers may need to top up the margin or risk asset redemption.
Loans Against Gold
Gold loans remain a popular secured borrowing option in India. Borrowers pledge their gold to access funds and repay with interest over time. Once the loan is cleared, the pledged gold is returned. These loans are generally disbursed quickly without extensive income verification, especially for amounts below ₹2.5 lakh. With interest rates ranging from 8.20 to 18 per cent, gold loans are typically cheaper than personal loans. However, price fluctuations in gold can impact borrowing limits and repayment conditions.
Personal Loans
Personal loans are unsecured and therefore come with higher interest rates, often between 11 and 24 per cent annually. They are widely available with flexible tenures of up to five years. The absence of collateral makes them appealing, but strict repayment terms, late payment penalties, and high processing charges can increase costs. Defaulting on EMIs can also affect credit scores and increase the risk of long-term debt.
Credit Card Loans
Credit cards allow interest-free spending only if bills are cleared in full by the due date. Missing payments or paying only the minimum due can lead to annualised interest rates as high as 45 per cent. Some cards offer EMI conversion or pre-approved personal loans against the credit limit at lower rates (13–22 per cent), but these reduce available credit and still carry significant risks if repayments are missed.
Secured vs Unsecured Loans
Secured loans such as those against gold or mutual funds are often cheaper, offering lower interest rates and greater flexibility in repayment. However, they carry the risk of losing pledged assets in case of non-repayment. Personal loans and credit card borrowing, though convenient, can be expensive if not managed carefully.
For small, short-term needs that can be repaid within a billing cycle, credit cards may be effective. For larger or longer-term requirements, secured loans remain safer and more affordable options.
Secured loans, such as those against mutual funds or gold, typically offer lower interest rates compared to unsecured personal loans or credit card borrowing. While credit cards and personal loans provide convenience and attractive festive offers, they often come with higher interest rates and stricter repayment terms.
Loans Against Mutual Funds
Investors who hold shares or mutual funds but prefer not to redeem them can pledge these assets as collateral. Such loans are processed quickly, require minimal documentation, and usually have lower interest rates than personal loans or credit card borrowing. The loan-to-value (LTV) ratio varies: for equity mutual funds, it is around 50–70 per cent, while for debt funds, it can reach 80 per cent. However, if market values fall, borrowers may need to top up the margin or risk asset redemption.
Loans Against Gold
Gold loans remain a popular secured borrowing option in India. Borrowers pledge their gold to access funds and repay with interest over time. Once the loan is cleared, the pledged gold is returned. These loans are generally disbursed quickly without extensive income verification, especially for amounts below ₹2.5 lakh. With interest rates ranging from 8.20 to 18 per cent, gold loans are typically cheaper than personal loans. However, price fluctuations in gold can impact borrowing limits and repayment conditions.
Personal Loans
Personal loans are unsecured and therefore come with higher interest rates, often between 11 and 24 per cent annually. They are widely available with flexible tenures of up to five years. The absence of collateral makes them appealing, but strict repayment terms, late payment penalties, and high processing charges can increase costs. Defaulting on EMIs can also affect credit scores and increase the risk of long-term debt.
Credit Card Loans
Credit cards allow interest-free spending only if bills are cleared in full by the due date. Missing payments or paying only the minimum due can lead to annualised interest rates as high as 45 per cent. Some cards offer EMI conversion or pre-approved personal loans against the credit limit at lower rates (13–22 per cent), but these reduce available credit and still carry significant risks if repayments are missed.
Secured vs Unsecured Loans
Secured loans such as those against gold or mutual funds are often cheaper, offering lower interest rates and greater flexibility in repayment. However, they carry the risk of losing pledged assets in case of non-repayment. Personal loans and credit card borrowing, though convenient, can be expensive if not managed carefully.
For small, short-term needs that can be repaid within a billing cycle, credit cards may be effective. For larger or longer-term requirements, secured loans remain safer and more affordable options.
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