Loan against Vehicle or Loan against Stocks – What Is a Better Option?
Sometimes, you may need immediate funds due to an unforeseen circumstance, like an accident or a medical emergency. One option is to apply for a loan against property, but this is a long process. A faster way to access funds is to apply for a loan against your vehicle or against securities held in your demat account.
Both types of loans require minimal documentation and offer quick and hassle-free procedures. Here is a comparison of these two options to help you make an informed decision.
- Loan–to–value (LTV) ratio
As per the guidelines laid down by the Reserve Bank of India (RBI), financial institutions can lend only 50% of the market value of the shares that are being pledged. Additionally, if the LTV falls below this limit due to a movement in the share prices, you will need to increase the same within a stipulated period. In comparison, lenders offer between 70% and 85% of the car value for a loan against vehicle. This means you can borrow more when you choose the latter option.
- Loan duration
Most financial institutions offer a loan against shares for a period of one year, which may or may not be extended later. On the other hand, the repayment tenure for a loan against car is available for up to two years.
Every lender offers a loan against stocks as per its pre-approved list of securities. Therefore, if your investment does not fall under this list, you will not be able to avail of this loan. On the other hand, most financial institutions offer a loan against all types of car models that are not discontinued. Moreover, to be eligible for a loan against vehicle online, your car’s age should not be more than five years.
- Processing time
Both loan types have a short processing time. However, a loan against shares may take a little longer if your demat account is not held with the lender, as you may need to provide an authorized holding statement from your demat account service provider. Such a delay may defeat the purpose of taking a loan to meet emergency requirements.
To sum up, a loan against car scores over a loan against securities in various aspects. This makes it a better and preferred alternative in case of a financial crunch. Lenders like Mahindra Finance offer a loan against all types of cars with minimal documentation rules and quick processing timelines.