In life, you encounter many financial challenges… Some arise due to a lack of proper savings.. While others arise due to emergencies. When facing such problems, your first instinct is to raise cash through a loan. The majority of people go for Personal loans or credit card loans to meet these needs. But do you think they are your best solution for immediate money requirements? Let us deep dive into the various parameters regarding LAMF vs Personal Loan on which you should decide which type of loan is best suited for you.
Understanding LAMF, Personal Loans and Credit Card Loans.
- Personal Loans – A personal loan is a form of financial assistance that you get from a bank or NBFC. This type of loan is extended to you based on your income. No collateral is needed for obtaining a personal loan.
- Credit Card Loans- A credit Card is a type of financial tool that allows you to use a fixed amount of monthly borrowed money. Credit cards are majorly used for meeting day to day small needs of individuals.
- Loan Against Mutual Fund – Loan Against Mutual Fund or LAMF is a secured loan provided by financial institutions such as banks or NBFCs like India’s leading LAMF start-up – Neoble provides against your mutual funds. LAMF is a new-gen financial product which is gaining huge popularity in current times.
Major Difference Between Personal Loan And LAMF
- Interest Rate Gap – When taking out a loan, one of your biggest concerns will be the EMI amount that you have to pay monthly. Even a small percentage change in the interest rate can significantly impact your EMI amount. Therefore, it is crucial to prioritize choosing a type of loan with a lower rate of interest. In India, the rate of interest on personal loans is considered to be the highest starting from 12% – 13%. Whereas you get a loan against mutual funds at a rate of around 10%-11%. This difference of 1%-2% can give you a considerable reduction in your EMI amount.
- Loan Without Credit Score – Up until a decade ago, the penetration of banking in India was very limited. Most households had only one bank account for the entire family. This not only excluded the majority of Indians from taking loans but also led to low credit scores. Having a low credit score creates many problems in obtaining a suitable amount of credit. However, a loan against mutual fund investments is granted on your mutual fund investments, thus eliminating the problem of not having a good credit score for a loan.
- Loan Amount Flexibility – Everyone’s requirements are different, therefore getting the right amount of loan is a big concern. The personal loan amount is decided on your income. An individual is allowed to take a loan up to 18 times his income. Whereas when you go with a Loan Against Mutual Fund, you can get an amount according to your flexibility. For example, if you have a mutual fund investment of 10 lakhs, you can borrow 6 lakhs,7 lakhs or any other amount within the prescribed limits of the regulator.
- Loan Repayment Flexibility – The majority of Personal loans are not flexible in repayment. In case you opt for early repayment of the loan, you have to go through extensive documentation and incur fines while repaying it. However, LAMF offers a more fluid loan repayment system with minimal fines and documentation.
- Minimal Document Verification – LAMF is given on your mutual fund investment and not on your income. Thus the documents needed to obtain a loan against Mutual Funds are relatively minimal compared to any other type of loan. Additionally, companies like Neoble – the best LAMF provider in India handle all loan processes digitally, making it easier to access credit.
- Pre-payment And Various Charges- The prepayment charges on most loans offered by banks and NBFCs can be substantial. These charges include insurance against collateral, various processing charges, and more. The Pre-payment charges are an important factor for many before deciding what type of loan they should take. There are no pre-payment charges in LAMF. This makes a Loan Against Mutual Fund one of the better choices for loan seekers.
Comparison between LAMF Vs Personal & Credit Card Loan (Table Format)
| Loan Against Mutual Fund | Personal Loan And Credit Card | |
| Interest Rate | Lower Interest Rate Of Around 10% – 10.5% | Higher interest rates ranging between 11% to 20% |
| Credit Score | As the loan is provided on your mutual funds, your credit score is not required. | The loan amount is heavily dependent on your credit score. |
| Document Verification | Minimal document verification is done which majorly consists of checking your mutual fund holdings. | Various documents ranging from your Income Tax return, PAN details, etc are needed before providing you with any loan. |
| Loan Repayment | Flexibility to pay interest only, principal + interest or Principal as lump-sum. No Prepayment penalty. | Not very smooth and has many fines and charges |
Conclusion
Getting a loan against Mutual Funds at the lowest interest rate is a better option than selling your mutual fund investments. This not only saves you the opportunity cost of losing your investment but also helps you to get a loan at a lower rate of interest in an easy way.
When you need money fast and you want a loan option that’s quick, affordable, and hassle-free. That’s where Neoble can help. Neoble offers instant Loan Over Mutual Fund that are directly deposited into your savings account. These are pre-approved LAMF loans available to selected users having a good Mutual Fund Portfolio. With Neoble, you get a 100% paperless loan process at a competitive interest rate, so that you don’t get burdened by hefty EMI.