Confused Between A Personal Loan And A Loan Against Mutual Funds? Compare Interest Rates Here

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Loans could be an effective way to fulfil your life goals or to bail you out of an emergency provided you choose a loan product that best meets your requirements and possess the required repayment capacity. There are different types of loan products available in the market and they could be broadly classified into two categories: secured and unsecured loans. Loans that require security or collateral to be pledged are secured loans. Home loans, auto loans, loans against property, loans against mutual funds are some examples of such loans. On the other hand, unsecured loans are those which do not require any collateral to be pledged. Personal loans fall under this category as they are non-dependant on collateral and could be availed quickly. However, personal loans usually carry a higher rate of interest than secured loans. Also, your credit score becomes an important factor in determining the applicable interest rate. If your credit score is lower than 750, the applicable interest rate is likely to be much higher than what will be offered to a borrower with a credit score of 750 or above.

Cash-strapped people falling short of loan eligibility requirements often tend to either dip into their savings or liquidate critical investments such as mutual funds, even at the cost incurring losses or stunting growth prospects in the future. But before taking such a decision, they should also explore whether they’re eligible for other secured loan options like loans against mutual funds, fixed deposits, property or eligible insurance policies. These loans could come at a lower interest rate than a personal loan. Additionally, such loans will not impact your savings and investments that are crucial for your financial goals. .

A loan against mutual funds could be taken against either equity or debt-oriented mutual fund schemes. However, do remember if you want to pledge your equity mutual funds as loan collateral, you won’t be able to borrow more than 50% of the pledged units’ net asset value (NAV). This threshold is higher up to 80% of the NAV for pledged debt funds and fixed maturity plans. This secured loan works as an overdraft facility after the borrower pledges his mutual fund units to the lender who attaches a lien on them and the borrower pays interest only on the actual loan amount used. Once you have repaid the loan, the lender will lift the lien and you will get the rightful ownership of your mutual fund units.

However, if you are eligible for both personal loans and loans against your mutual fund investments but cannot decide which one to take, you can compare your options based on interest rates, loan amount and processing time to find the best financing match. The table below compares the interest rates on personal loans and loans against mutual funds currently being offered by 10 leading banks. Do note, we have only considered the lowest advertised interest rates for both the loan products for each of the banks, and the rates applicable to you could be higher depending on your age, income, credit score, loan amount, or any other terms and condition of your chosen bank. Interest rates for loans against mutual funds may vary depending on the type of underlying fund being debt or equity, size of the loan, LTV ratio among other factors.

Interest Rate On Personal Loan vs. Loan Against Mutual Funds

Bank name

Lowest Personal Loan Interest Rate (p.a.)

Lowest Loan Against Mutual Funds Interest Rate (p.a.)

Punjab National Bank

8.95%

10.30%

State Bank of India

9.60%

9.75%

Bank of Baroda

10.00%

7.25%

HDFC Bank

10.50%*

8.00%**

ICICI Bank

10.50%

9.90%

Kotak Bank

10.75%

9.25%

Indian Overseas Bank

10.80%

10.30%

Yes Bank

10.99%**

8.85%**

IndusInd Bank

11.00%

9.03%**

Axis Bank

12.00%

10.50%

Disclaimer: Data compiled by BankBazaar.com from respective bank’s websites on July 9, 2021. The lowest interest rates on personal loans and loans against mutual funds (LAMF) by all the listed (BSE) public and private banks have been considered for data compilation. Banks for which data is not available on their website are excluded. Banks are listed in ascending order on the basis of lowest advertised interest rate on personal loans. *Rack interest rate; Interest on LAMF may vary depending on type of underlying fund being debt or equity, size of loan, LTV ratio and other factors. ** Min APR for Quarter Jan to Mar 2021.

Need help in calculating your EMIs? Use BankBazaar’s easy Personal Loan EMI calculator.