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Financial planning in life is often done for comfortable times, but troubles arrive without an appointment. Whether it's a medical emergency or a sudden cash crunch in business, the question at such times isn't "which loan is the cheapest?" but rather "which is the quickest and least stressful option?"

This is where most people get stuck between two options: Personal Loans and Loans Against Securities. Both provide money, but there's a significant difference between them.

Personal Loan

The biggest strength of a personal loan is that you don't need to pledge anything as collateral. This means no guarantee, no assets at stake, and no market worries. If you have a stable salary and a decent credit score, banks or NBFCs can approve the loan within a few days. The EMI is fixed from day one, and you simply have to pay a fixed amount every month.

This is beneficial for people who:
Need the full amount immediately.
Want to avoid complex financial technicalities.
Prioritize peace of mind over interest rates.
But there's a price to pay!
Personal loans are unsecured, so the interest rate is higher. Remember that the need might be for a few months, but the EMIs can stretch for several years, and the total interest paid can be much higher than you expect.

If you have already invested in mutual funds, shares, or bonds, a Loan Against Securities can be a smart option. In this, you don't sell your investments, but instead pledge them as collateral to get a credit limit. Withdraw money when needed, and deposit it back when you have the cash. The specialty of this loan is its flexibility. Interest is not charged on the entire limit, but only on the amount you have used.

This works better in situations where:
The need for money is temporary.
You want cash without liquidating your investments.
You understand market fluctuations.
But there's a hidden risk here: if the market falls and the value of your pledged investments decreases, the bank may ask for additional security or a partial payment.

What is the main difference between the two loans? Often, comparisons are made solely on interest rates, but the real difference lies in the mental burden. A personal loan is expensive, but it offers peace of mind. A loan against securities is cheaper, but anxiety can increase with every market downturn. Everyone has a different tolerance level for stress. Therefore, one option may not be right for everyone.

Which option is right?
The answer to this question depends on your situation:

If you need speed and certainty – a personal loan
If you want lower costs and to preserve your investments, a loan against securities

Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.