The personal loan is amongst the most popular borrowing choices for people seeking quick access to the funds for a range of personal reasons, including wedding, education, medical treatment, purchasing expensive things, etc. The reason is easy availability and no collateral needed for availing loan for personal uses

Along with personal loan documents, the collateral-free or unsecured nature of the loan makes it highly crucial for lending institutions to ensure the applicant’s creditworthiness. 

What Is Credit Score?

A credit score given is a three-digit number ranging from 300 to 900, which is ascertained based on your credit history. A higher CIBIL score or the score closer to 900 (above 750) is usually considered to be an impressive score, whereas the score around 300 is a poor credit score.

A high CIBIL score indicates increased creditworthiness through good repayment and past credit behavior track record. So, it indicates a decreased default risk of the lending institution. Although credit score does not determine a person’s ability to obtain a personal loan, it is amongst the factors that lending institutions consider when they evaluate loan applications. 

A person with a poor credit score or no credit history is considered as dubious or a high-risk borrower by lenders and finds it difficult to secure a personal loan for a low CIBIL score. Your credit score is affected directly by – 

• Credit mix or the ratio of secured and unsecured loans.
• Credit utilization ratio or the ratio between your assigned credit limit and current outstanding debt. 
• Age of credit history 
• Repayment history 

Benefits Of Having An Ideal Credit Score

1. Better Living Standard
   If a person has maintained an attractive CIBIL, they can take up loans for buying a new vehicle or house or starting a new business. With a new home in a posh area and a good car, the applicant’s living standard will automatically rise. The person can afford luxury items because of easy and cheap personal loans.

2. Signifies Your Creditworthiness
   While seeking a personal loan, lenders consider your CIBIL score as much as your personal loan documents. The credit score acts as a stamp of your creditworthiness. The lender can know whether an applicant would repay their loan on time or not just by considering their CIBIL score. People who have low CIBIL scores are usually offered loans with a lot of terms and conditions. 

3. Interest Rate
   Lenders happily offer personal loans to applicants with impressive CIBIL scores for a competitive rate of interest. So, if your credit score is high, you can secure the loan easily at any lending institution, which means you can negotiate for a lower interest rate. Some lending institutions also waive off pre-payment and processing charges. But in the case of a low CIBIL, the lender determines the rate of interest, which is considerably high.  

4. Fast Loan Approval
   If you are thinking of starting up, you will need a fair amount of cash. You will have to acquire a small loan for the same, and you cannot obtain an affordable personal loan for low CIBIL score. Although having a good CIBIL score is not enough to guarantee loan approval, it increases the chances of being successful at acquiring personal loans. Additionally, applicants with a high credit score will acquire larger loan amounts at lower interest rates. Their loans also get approved within significantly less time. 

Conclusion 

The benefits mentioned above of possessing a winning CIBIL score signify why maintaining a score above 750 is essential. CIBIL score is a direct indicator of your creditworthiness and affects how risky lenders consider you. If your score is low, they would be hesitant in offering you a large loan, and even if they do, the interest rate would be high. 

The post Importance Of An Ideal Credit Score For Availing Personal Loan appeared first on Today News Spot.

For an investor, mutual funds are a method to spread their portfolio across multiple segments and risk profiles. Especially low-risk customers can gain enhanced overall benefits with mutual funds through SIP. 

But, did you know that you can also take a loan against mutual funds?

A loan against mutual funds interest rate is usually low, and the time period is short. This type of loan is best for an emergency situation where you need money for a short-term. 

Let’s see how you can take a loan against mutual funds.

What Does It Mean to Take a Loan Against Mutual Fund Investment?

Loan on mutual funds means you can gain liquidity almost immediately on your mutual fund units. This is a type of overdraft option, so the tenure of the loan is rather short. However, the major benefit of this type of loan is that you don’t need to sell your mutual fund units or transfer its ownership to the financial institution. The financial institution or the mutual fund’s provider keeps a lien amount on your mutual funds, which safeguards their investment. In a way, offer collateral to the financial institution. 

Understanding Lien Amount

While lien amount doesn’t mean that you have sold your mutual funds, it means that the financial institution can sell this fund if you don’t repay the loan money. This means that you are giving the financial institution ownership to sell or use this fund to recover any losses.

To allow the financial institution to keep your fund as a lien with them, you need to request your fund house to make this transfer of ownership. 

Note: You can’t withdraw your funds or use this fund in any manner until it is a lien amount to the financial institution. 

How Much Loan Amount Against Mutual Funds Can You Take?

It depends on the type of mutual fund you hold. 

If you have purchased an equity fund, then you may receive only 50% of your Net Asset Value. This is because an equity fund is quite volatile, and its value may drop considerably if the stock market goes down. So, you can only get 50% and sometimes, even less loan on mutual funds of the equity market.

If you have purchased a debt fund, then you can get more than 50% of your NAV.

However, most of the time, the lending organization or the financial institution decides the amount they want to lend on your mutual fund units. The maximum amount you can get is INR 20,00,000, and the minimum amount is INR 1,00,000*.

Further, it is necessary to note that the financial institution will only offer you a loan if you have already completed the minimum lock-in as per your policy documents. Before that, you can’t take a loan against mutual funds. Even the Mutual Fund provider won’t agree to the lien amount before the lock-in period ends. 

Documents Required for Availing Loan Against Mutual Fund:

These are the following documents required by any financial institution for taking a loan against mutual funds:

1. Identity proof- PAN card, AAdhar card, Voter id, Driving license, Ration card
2. Address proof- Voter id, Passport, utility bills
3. Signature proof
4. Latest Photograph
5. Cancelled cheque
6. Account statement
7. ITR
8. Complete application form

What is Loan Against Mutual Fund’s Interest Rate?

There are two factors that contribute to the loan against the mutual fund’s interest rate. 

1. Since it is a secured loan, its interest rate is lower when you compare it with a personal loan or unsecured loans. So, you can get a loan at 10-11% depending upon your mutual funds’ units.
2. Secondly, if you have a good credit score and a nice reputation with the financial institution, you can get an even lower interest rate than mentioned above.

Usually, there is no fixed tenure in mutual funds loan till which you need to keep paying interest even when you have paid the principal amount. But, read Mutual Fund documents to understand this. 

Conclusion 

Hence, at last we can say that loan against mutual funds is an easy option to fulfil your emergency requirements without taking any unsecured loan. Just talk to your financial institution, transfer the lien rights to the financial institution, and receive the loan amount in 2-5 days only. 

The post How to Get a Loan Against Mutual Fund Investments? appeared first on Today News Spot.