Loan Against Securities vs Personal Loan vs Credit Card

Borrowing doesn’t always mean parting with your assets or paying steep interest. In India, investors can access credit through three common routes: a Loan Against Securities (LAS), a personal loan, or a credit card loan. While LAS lets you unlock liquidity from your investments at comparatively lower rates, personal loans offer unsecured lump sums with fixed EMIs, and credit card loans provide instant short-term credit at higher costs. Understanding how these options differ in terms of collateral, flexibility, processing time, and risk can help you choose the most suitable financing tool for your needs.

What is a Loan Against Securities (LAS)?

The key difference between LAS vs unsecured loans like personal loans or credit cards is that the former is a secured loan against your existing investments. These may include mutual funds, bonds, stocks, and insurance policies. You can thus get funds quickly without having to sell off your securities/investments. You will continue earning returns on them, with the amount you can borrow based on the LTV (loan-to-value) ratio. It is a percentage of the market value of the securities that you’re pledging to the lender (usually up to 50% for listed shares and mutual funds). 

These loans are mostly given as overdraft facilities, where you only pay interest on the amount that you withdraw. At the same time, another difference between a loan against mutual funds and a personal loan is that the former typically offers lower interest rates (since you’re pledging assets). 

What is a Personal Loan?

On the flip side, the LAS vs personal loan India debate can be better understood by examining the latter in more detail. Personal loans are unsecured loans that you can use for varying purposes. You may repay them in fixed monthly instalments (EMIs) over a certain period, without having to provide any collateral. Eligibility is usually based on your credit score and income (repayment ability), while interest rates are higher because these are unsecured loans.

What is a Credit Card Loan?

The credit card loan vs personal loan question also needs to be solved. In this case, a credit card loan is a pre-approved personal loan issued to an existing cardholder. The loan amount is sent to the bank account and repaid in fixed monthly instalments. It is a no-collateral way to raise funds, though the interest rates are higher than those for secured loans. 

The loan is pre-qualified, depending on your repayment history, credit card usage, and credit score. Documentation may be lower than for personal loans, while disbursements may be slightly faster. You may choose flexible repayment terms up to 60 months based on your budget. 

LAS vs Personal Loan vs Credit Card 

Here is a round-up of the loan against securities vs personal loan vs credit card loan comparison. 

This gives you an idea of the loan against shares vs personal loan vs credit card loan debate. Let us now look at the pros and cons of these loan types. 

Advantages of LAS

A loan against security (LAS) offers the following advantages: 

• Lower interest rates, since you’re pledging collateral for the loan. 
• Continued ownership of your investments without selling them off, while you also keep getting benefits/returns throughout the loan tenure. 
• You can repay flexibly, i.e., pay only interest during the tenure and pay the principal at the end, or make partial prepayments without penalties.
• You only pay interest on the amount used (as an overdraft facility). 
• The process is fast, requires minimal documentation, and offers swift disbursement. 
• You may use the funds for any purpose. 

Limitations of LAS

Some limitations include the following: 

• Risks of market volatility, which may lead to margin calls. This requires you to provide additional collateral or repay a part of the loan immediately. 
• Failure to meet these calls or any defaults may result in the lender selling the pledged securities to recover outstanding dues. 
• Specific LTV ratios limit the loan amount and may not be sufficient for larger financial requirements. 
• You can only borrow against a list of approved, high-quality, and liquid securities. 
• You cannot sell or transfer the pledged securities during the loan period, which may lead to missed market opportunities at times. 

Advantages of a Personal Loan 

Some pros of personal loans include the following: 

• You can use the funds for almost any purpose, including consolidating debt, weddings, buying gadgets, home renovations, and medical costs. 
• You do not have to provide any collateral for the loan. 
• The application and disbursement procedures are usually faster than many secured loans. 
• You may have fixed interest rates and terms, helping simplify your budgeting. 
• Timely and consistent repayments may help you boost your credit score to qualify for better loan terms in the future. 

Limitations of Personal Loan

Some of the limitations of personal loans include the following: 

• Higher interest rates than secured loans. 
• Stringent eligibility requirements of lenders, particularly regarding credit scores. 
• There are processing fees, origination fees, late payment penalties, and prepayment charges to contend with. 

Advantages of Credit Cards

Some advantages of credit cards include the following: 

• Easy access to pre-approved credit. 
• Instant disbursal without major documentation or procedures. 
• Convenient for getting funds during major emergencies or sudden needs. 

Limitations of Credit Cards

• Very high interest rates if you do not pay in full within the specified period. 
• Limited pre-approved loan amount, based on your eligibility. It is not ideal for bigger financial needs. 
• Temptation to overspend or accumulate debt, which may lead to a debt trap or cycle. 
• Multiple fees and charges. 

When to Opt for a Loan Against Securities

You should choose it when you want a more cost-effective loan option with lower interest rates. At the same time, you should do it when you want more flexible terms and overdraft facilities (paying interest only on what you withdraw), without having to sell off your investments. 

When to Choose a Personal Loan

When you want quicker access to funds with fixed, predictable EMIs and schedules. 

When to Choose a Credit Card

When you want immediate access to funds in emergencies, and can repay the loan amount in full quickly. Also, when you want revolving credit and a cashless way to pay for short-term expenses. 

Tax Implications

Is the interest you pay deductible? Let’s find out. 

• Loan Against Securities- Interest is only deductible in case you use the loan for business or buying income-generating assets like real estate or shares. The deduction will be limited to the income that you generate. 
• Personal Loan- The interest is not deductible for all personal uses. It may be deductible only if you use it for home renovation/construction (under Section 24B), higher education (under Section 80E), or business expenses. 
• Credit Card- Interest is never deductible for personal expenditure. You may only deduct interest for legitimate business costs, and proper documentation must be furnished in this regard.