Some banks and lenders allow you to pledge your mutual fund units to get a bank overdraft instantly
Loan could be a very useful tool, if planned and aligned as per your financial goals. However, you may face a situation when you don’t have much time in hand to plan your borrowing and there is an urgent need for money. This is where short-term loans come handy and bail you out from unannounced financial emergencies like salary delay or medical urgencies. These are basically personal loans that are made available instantly for a short tenure. Based on the need, there are various types of short term loans offered by banks and financial institutions that you can avail during a financial emergency.Payday loan
There was a need for short-term loans in India with tenures smaller than the typical personal loan. Hence, payday loans are becoming popular. The interest on a payday loan could be higher in comparison to the personal loan or loan against credit card. However, it is instantly available and you can borrow small amounts. You just need to upload your salary slip, bank details, PAN card copy, and a few other details, to get the loan amount credited into your bank account within the same day of submitting the application. The tenures on such loans can be just a few days or a few months, unlike a personal loan whose tenure is typically 1-5 years.
There are many companies which allow their employees to take a loan either at low interest rate or with no interest for a short period. Such a loan is usually adjusted against your salary every month or as per the company’s norms. Before you apply for a loan from your company, exercise due diligence and consider the tax applicability factor.
You can avail an instant loan against the credit card you are using. You can get the loan through the card company on the basis of your credit history, repayment capacity and credit limit. A credit card loan is pre-approved or pre-qualified. These loans are granted at a rate comparable to personal loans rates. You can get a higher amount than the cash withdrawal limit available on your credit card. You get a flexible repayment tenure normally ranging from 3 months to 24 months.Loan against mutual fund
Some banks and lenders allow you to pledge your mutual fund units to get a bank overdraft instantly. Loan against mutual fund is provided against qualified funds. The loan is allowed against both debt funds as well as the equity-oriented fund. The most important benefit of a loan against mutual fund is that even an applicant having no credit history can apply and get this loan easily. Unlike other short-term loan products, this loan is secured in nature, but at the same time the processing time required is very little.Loan against Public Provident Fund
If you have a PPF account, then you also take a loan from the third financial year to sixth financial year of opening the account. As compared to a personal loan, this kind of loan can be taken at lower interest rates. A loan against PPF is charged 2 percent higher than the interest earned on the balance in the PPF account and is to be re-paid in 36 months tenure. The interest charged will be 6 percent more if the loan repayment crosses 36 months. The amount of loan you can avail is capped at 25 percent of the balance at the end of the second financial year preceding the year in which the loan was applied for.Things to keep in mind before you apply for a short-term loanIt is important that you apply only for the loan amount you need urgently and which you are sure that you would be able to repay within the scheduled repayment period. Applying for a higher loan amount can unnecessarily put pressure on your other financial objectives.
It is always better to save money and build a contingency fund to meet emergency fund requirement.The writer is CEO, BankBazaar.com.