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In banking terms, there are two types of property – movable and immovable. Assets like gold and securities are termed as movable property and property is termed as immovable or illiquid assets. "In case of gold loans, lenders will be keen on 'know your customer' requirements than documentation pertaining to loan repayment ability," says Harsh Roongta, CEO, Apanapaisa.com, as quoted by ET.

"As lenders are sure about the realizable value of the collateral, they are more comfortable offering loans against gold and insurance policies," says Madan Mohan, Chief Counsellor, Credit Vidya, a Financial Literacy and Credit Counseling Entity.

The Bottom Line

The most important factor about loan against asset is that you receive only a fraction of the market value of the asset as a loan.Usually in case of a gold loan, banks offer up to 70 percent of the market value of gold and non banking finance companies offer up to 60 percent of the market value of gold.

For loan against shares, a diversified equity portfolio can get a loan of up to 50 percent of the market value of shares. For single stock portfolio this loan to value ratio falls to just 40 percent.

"Price of gold is not as volatile as prices of individual stocks. You may be better off raising money against gold compared to a basket of stocks or mutual fund units," says Satish Mehta. So how much you need as a loan and when you can afford to pay it back; consider these factors and take a loan.

Also Check: 7 Reasons That Prompt You To Switch Banks