Best Cheaper Alternatives to Personal Loans

Top 3 Best Alternatives to Personal Loans

A personal loan could be a way out when you need urgent cash. It may seem a convenient option, but the interest rate that it comes with will cost you some extra bucks and may compel you to get into the vicious cycle of debt. Furthermore, to be able to avail of this collateral-free loan, the borrower needs to hold a good credit score.

There could also be some other charges, which may add to the total cost of the loan. If you have invested in the stock market, there are better and cheaper alternatives to personal loans. These include loans on mutual funds and instant loans against shares.

These loans bring you better terms on the interest rate, processing fees, and other charges. They can be your go-to choice when you need immediate cash for short-term requirements. You may use them for various purposes, such as home renovation, financing your child’s education, debt consolidation, etc.

One more thing that makes them a more reasonable choice is that you may get it within hours. Let us unveil some cheap loan alternatives to personal loans. But first, it is imperative to understand the total cost of a personal loan with interest added.

Personal loans

A personal loan is a financial product you can take to meet your varied fund requirements without pledging or selling off your existing assets. The interest rate for this unsecured loan is way too high.

The interest rate for personal loans could range from 8.5% to 49.5% (p.a), much higher than that for a secured loan, such as instant loans against shares and quick loan against mutual funds. If the processing fee (which could be between 2% and 6% of the loan value) is to be added, the loan costs much higher.

For example, if you take a personal loan worth Rs. 1 Lakh at an interest rate of 20% p.a. and a processing fee of 3% for two years, it will cost you Rs. 1, 40,000 excluding the processing fee, which sums up to Rs. 3000 in this case.

Alternatives to Personal loans

Loans against securities are better alternatives to personal loans. Although many low-interest loans are available out there, here are a few you may choose.

Loan against mutual funds

Top of the list is a loan against mutual funds (LAMF). It is one of the wisest options for those requiring immediate liquidity without selling off their MF units. Not only is it a low-interest loan, but it also lets you access flexible amounts. Minimum and maximum credit limits may vary from one Bank/NBFC to another.

The interest rate, which is the most crucial factor that determines the cost of the loan, may differ too. This cheap loan allows you to get up to 80% of the value of mutual funds holdings. While you unlock quick capital at lower interest rates, starting from 8% p.a., your investments remain market-linked and continue to give you returns, subject to the market condition.

Interest rates (IR) and processing fees applicable are considerably low, which makes it a cheaper loan option. While the IR may run from 8% to 16% per annum, the processing fee could be as low as 2% of the loan value.

loan against shares

An instant loan against shares or a loan against stocks is another alternative you can choose over a personal loan. When compared, the former costs less than the latter. That is again because of a lower interest rate and processing fee.

When taking this loan facility, your stock holdings act as collateral to secure the loan. The higher the value of your shares is, the more credit you can access by pledging them. Different lenders may have varied credit limits and interest rates. The IR could go up to 16% per annum, starting from as low as 8% p.a.

Another factor that makes it a cheaper personal loan alternative is that it includes no prepayment charges when taken from reputed lenders like Abhi Loans. Best of all, it allows borrowers to gain returns from their investments. As the cost of your shares increases, you become eligible to get a higher loan amount.

Loan against bonds

You may also opt for a loan against bonds for a lower interest rate and more flexible repayment facilities. Bonds are fixed-income instruments you may use to borrow money.

Here, as well, your bonds act as collateral to secure the loan. With such a loan, the tenure is short and the interest rate is low. The amount you can borrow is up to 60% of the value of your bond.


Although a personal loan may seem to be a suitable option to borrow money in times of financial emergencies, high-interest rates and other charges included in it make it less preferable to a loan against stocks and a quick loan against mutual funds. The latter is less costly in terms of interest rates and processing fees and hence, is a cheaper alternative.

But then, for a better deal, you must compare the interest rates and processing fees of varied lenders before considering taking an instant loan against shares. If you have investments in the stock market, do not look beyond these cheaper alternatives in need of immediate cash.