Although both Personal Loans and Loan Against Mutual Funds can be used for emergency funding, they have different advantages and disadvantages.
Before deciding to obtain emergency funding, you should always compare the risks and costs of personal loans and loans against mutual funds. You can avail of personal loans to quickly access funds, but they often come with higher interest rates.
On the other hand, loans against mutual funds generally come with lower interest rates, but they also simultaneously carry the risk of market fluctuations that can strongly affect your mutual fund assets. Overall, the decision depends on you, your particular circumstances, and the need for funds.
When to Use Emergency Funds?
- Healthcare Emergencies: As you know that, medical emergencies in India can be expensive. Therefore, it’s essential to set aside an emergency fund to cover these costs without straining your budget.
- Loss or Reduced Income: Nowadays, it’s common to face economic uncertainties. That’s why having emergency funds can help you provide temporary income during a job loss or income reduction.
- Family Emergencies: It is highly suggested that you have an emergency fund to cover unexpected family costs such as hospital bills or education expenses.
Let’s take a closer look at the features provided if you choose Personal Loans as their emergency fund. At Neoble, understanding these features can help you make a well-informed decision about your financial needs.
- No need for collateral: Personal loans are outstanding because you do not need to worry about putting up any collateral. This makes them accessible to people without significant assets.
- Flexible Repayment: The best part about personal loans is that they come with fixed monthly payments over a set period, making budgeting a breeze.
- Accessibility: Getting a personal loan is relatively easy, but the amount you can borrow depends on your creditworthiness and income.
- Immediate Financial Needs: If you urgently need funds for medical expenses or essential appliance repairs and do not have enough savings, a personal loan can provide the necessary funds quickly.
Moving on, it’s now time to discuss the key features of Loans against mutual funds, which you should consider for your emergency funds.
- Secured Loans: These loans offer lower interest rates due to the collateral your mutual fund investments provide.
- Lower Interest Rates: Unlike personal loans, secured loans typically have lower interest rates.
- Lesser Credit Score Impact: Approval for secured loans may be less influenced by your credit score than personal loans.
- Flexible Repayment: Secured loans offer flexible repayment terms, including the option to pay only the interest during the loan term and settle the principal later.
| Key Features | Loans Against Mutual Funds | Personal Loans |
| Interest Rates | Lower interest rates at just 10.75% pa | Higher interest rates ranging from 13% to 20% or even higher |
| Credit Score | Credit score is not a factor | Credit score determines loan eligibility |
| Documentation Requirements | Verification occurs online; no documents are required in most cases | Can require documents like an Aadhaar/PAN card/Passport/Voter’s ID/Driving license along with salary slips of the last 3 months |
| Loan Amount Flexibility | Based on mutual fund value | Based on creditworthiness, income, credit score & multiple other factors |
| Loan Repayment Flexibility | Pay only interest each month; the principal can be repaid anytime | Pay both principal & interest every month |
| Prepayment Charges | Available at NO extra charges | Varies across lenders ranging between 2-5% on the outstanding amount |
If you are looking for emergency funds, check out Neoble.in. With them, you can experience the hassle-free feature of a Loan Against a Mutual Fund that is purely secured and 100% reliable at a lower interest rate.
Conclusion
After comparing emergency funding options, don’t forget to consider the trade-off between risk and cost. Personal loans offer quick access to funds without risking assets but have higher interest rates and require a good credit score. Loans against mutual funds provide lower interest rates but involve the risk of market fluctuations impacting the value of mutual fund assets.
It would be best if you wisely balance the need for an emergency fund and what are the associated risks and costs related to it.