Investing in securities will help an individual in case of a financial need that may arise at any point in time. In such cases, individuals might think to sell off or liquidate these investments for additional funds.
However, one can think about taking a loan against these investments, instead of liquidating the investments. In this article, we will talk about loan against property vs loan against bonds and which one an individual should choose.
What is a loan against property?
As the name suggests, a loan against property is a secured loan that individuals can get by mortgaging their property. The property can either be land, commercial estate, or a house. Individuals can use this loan amount for various purposes like expanding their businesses, medical treatments, debt consolidation, etc.
What is a loan against bonds?
In a situation where individuals require urgent funds, they can opt for a loan against bonds. By availing loan against bonds, they pledge their bonds as collateral to a financial institution and receive an overdraft credit on its behalf. The individual can still earn income while mortgaging these bonds. Some reputed financial institutions provide loan against bonds to corporates, limited liability partnerships, sole proprietorships, and other types of businesses.
What is the difference between a loan against property and a loan against bonds?
The following points talk about the differences between loan against property and loan against bonds:
● Mortgage
Both the loans are secured and need collateral for sanction of such loan facilities. In a loan against bonds, an individual needs to pledge their bonds for availing of the credit while in the case of a loan against property, the individual needs to mortgage a property.
● Documents
In a loan against bonds, one needs the following documents: identity proof, residence proof, original documents of the bonds, and the last six months' bank statements. However, in a loan against property, an individual needs several documents including residence and identity proof, bank statements for the last six months, and property papers.
● Tenure
When an individual applies for a loan against bonds, the tenure is up to 36 months, subject to terms and conditions stipulated by each lender and the lender can renew this facility at its sole discretion . In the case of a loan against property, the repayment tenure of the loan amount is usually 15 years or any other period as may be stipulated by the lender. The individual can repay the loan amount during this period.
● Interest rates
There is a vast difference in the interest rates of both these secured loans provided by Bajaj Finance Limited. In loan against bonds, the interest ranges up to 20% p.a. However, in loan against property, the interest rate ranges from 9% to 12% (Floating rate of Interest). The range of interest rates is the same for salaried and self-employed individuals.
Regarding loan against property vs loan against bonds, many individuals may not prefer collateralising their property as it includes certain risks. So, opting for a loan against bonds will be an ideal choice as individuals need to pledge their bonds only.
Choosing a loan against bonds is also beneficial for borrowers as they need to pay interest only on the loan amount utilised.
What are the features of loan against bonds?
The following are some features of loan against bonds provided by reputed financial institutions:
● Individuals need to pay interest only on the loan amount utilised for a particular period. They do not need to pay Instalments on the total approved/ sanctioned loan amount.
● The loans are sanctioned up to a limit of 95% of the value of the bonds. However, this will vary from lender to lender.
● Individuals can earn income on the bonds even after pledging them.
● The lending organisations provide a high loan amount with minimal documentation.
● Processing fees on loan against bonds is up to 4.72% (inclusive of applicable taxes). of the loan amount.
Who can apply for a loan against bonds with Bajaj Finance Limited?
The eligibility criteria for loan against bonds in certain reputed financial institutions are as follows:
● Individuals need to be Indian citizens.
● Here’s the age criteria:
• Minimum age: 18 years
• Maximum age: 90 years
*Age of the individual applicant/ co-applicant at the time of loan maturity.
*Higher age of co-applicant may be considered up to 95 years basis 2nd generation (legal heir) meeting age norms and to be taken as co-applicant on loan structure.
● Individual needs to be a salaried or self-employed citizen.
● The value of the bonds for availing loan should be a minimum of Rs. 50,000.
An individual needs to collateralise physical assets when availing loan against property. On the other hand, they must collateralise their securities in the form of bonds when opting for loan against bonds. Based on the above-mentioned points of loan against property vs loan against bonds, they can choose the credit option beneficial for them.
