We live in an age of credit. But given recent economic scenario, borrowing has become an expensive proposition. Depending on the amount to be borrowed, the options vary. While borrowings from banks attract hefty interest burdens, credit cards perhaps are the worst. Here are some tips on borrowing options that we often overlook.
1) Mortgage: any lender would like to have collateral against lending as guarantees. Mortgaging property for large loans help lower loan risk and thereby the interest rates. Lower interest rates mean lower repayment and cost of loan.
2) Borrow against Insurance policies: endowment based insurance policies are not just future investments, but assets that can be used to borrow at present times as well. Most insurance companies offers loans against its own endowment policies at reasonable rates. Even banks offer loans at lower rates against endowment based insurance policies at relatively lower interest rates.
3) Tapping your Provident Fund: we often forget that we can avail loans from our provident fund (between 3 and 6 years) and make advance withdrawals after 7 years. However, the terms and conditions maybe a bit stifling.
4) Loan against Fixed Deposits: we can avail loans against fixed deposits (FD), instead of having to break them. It is basically structured as an overdraft facility. Thus, if you do not pay it by the time the FD matures, the amount is simply adjusted against it. There are no prepayment penalties or restrictions on end use of such loans.
5) Borrow from family or community: for short term or smaller amounts, one can always fallback on one’s owns. Many business communities have well established customs of helping those from the same community. If you are meticulous about repayment, such borrowings perhaps offer the most convenient terms of borrowing.
6) Peer to peer lending: perhaps the best option today for small term loans is P2P facilities. Faircent, the pioneer in India, offers an open platform that acts as a market place to interact with potential lenders. It allows flexibility in negotiating interest rates, period of loan, and also the option of borrowing from multiple lenders. Faircent also gives the option of borrowing from communities, thereby helping tap a traditional route in a modern avatar. You can get loans for purposes which conventional financial institutions may not lend to , and get it at the lowest interest possible.
Thanks for sharing this great post.
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