Smart investors don’t keep their portfolio limited to just stock market. They also tend to invest in other tangible investment sources like gold, property and other money instruments. While they mostly focus on the performance of their shares, bonds and mutual funds, they often consider tangible investments as backup. In times of financial crisis or poor stock market performance, investors liquidate these (tangible) assets for additional funds.
Although liquidating these assets might get you quick funds, you also end up losing them. On the other hand, you can consider taking a loan on these assets and repay them later. Since investors are often require substantial amounts to support their needs, gold loan and savings account might fall short to cover them. This narrows us to the last options i.e. property and shares; but since financial institutions offer loans against securities, you now have to choose the better alternative from among Loan against Securities and Loan against Property.
Loan against Securities Vs Loan against Property:
To help you choose the better one among them, here are some points that show the similarities and difference between both the sources.
- Mortgage: Both the loans are from the secured loan segment and need collaterals for approval. In loan against property, you have to pledge the property that belongs to you, whereas, in loan against securities you have to pledge the mutual funds, National Savings Certificate, Kisan Vikas Patra or LIC policy or equity shares and bonds.
- Tenure: In loan against property, the lender sets the tenure and interest for the loan. Most of the lenders offer loan tenure as long as 15 years. On the other hand, in loan against shares, if you pledge your stock market assets, the lender might offer you tenure as low as 1 year, which can be extended by paying extra charges.
- Documents: If you are looking for easy documentation, you can opt for loan against security. You require minimal documents like KYC, security’s latest report and the lien document. The list of document for loan against property is quite long and every document has to be in proper condition. To apply for a loan against property, you have to submit documents like receipt of latest maintenance, water tax, municipal tax, Non encumbrance letter from co-op society, Permission to create Equitable Mortgage from society, Permission to create equitable mortgage from society.
- Interest rates: There is vast difference in the interest rate of both the loans. You can get a loan against securities for an interest rate of 12-15 percent per annum, whereas, a loan against property comes with a hefty interest margin of 13-17 percent. As loan against securities has a lower tenure, it would save you a lot of money on interest.
Both loans are helpful in their own way and have their drawbacks as well, it is up to you to choose the one that suits your requirement better.