Borrow Better with Top Personal Loan Alternatives

In recent years, personal loans have surged in popularity across India. According to RBI data, personal loan disbursements crossed Rs.10 lakh crore in FY 2024, growing at over 20% year-on-year. With minimal documentation and fast approvals, they have become the easy-fund option for everything from weddings to medical emergencies.

But remember, personal loans come with high interest rates between 10% to 24% and comparatively with short repayment tenures. As they come with no collateral, it makes them expensive and risky for long-term financial health.

So, what if you have got some options to borrow smarter using assets you already own or opting for more strategic credit options? They are known as personal loan substitutes.

Outlined below are some of the top alternatives to personal loans that can help you borrow better.

1. Loan Against Property (LAP)

What it is?

Loan Against Property is a secured loan where you pledge residential or commercial property as collateral.

Why it is better?

• Lower interest rates usually 8% to 12%
• Longer tenure up to 15 years
• Higher loan amount up to 60–70% of property value

Example: Ravi needs Rs.20 lakh for his daughter's wedding. Instead of a personal loan at 14%, he opts for a LAP at 9.5%, saving over Rs.3 lakh in interest over 10 years.

2. Loan Against Fixed Deposit (FD)

What it is?

Loan Against Fixed Deposit is a loan where your FD acts as collateral. It is usually offered by the same bank where you have your FD account.

Why it is better?

• Interest rate is just 1% to 2% above your FD rate
• No need to break your FD
• Quick approval and minimal paperwork

Example: Priya has a Rs.5 lakh FD earning 6.5%. She borrows Rs.4 lakh against it at 7.5%, instead of taking a personal loan at 13%. Her FD continues to earn interest while she pays less on the loan.

3. Loan Against Shares or Mutual Funds

What it is?

Loan Against Shares or Mutual Funds is a loan where you pledge your equity shares, mutual funds or bonds.

Why it is better?

• Interest rates are around 9–12%
• Flexible repayment
• Ideal for short-term liquidity

Caution: Market volatility can affect your pledged asset value, so this is best way to borrow money for financially savvy borrowers.

Example: Amit pledges Rs.10 lakh worth of blue-chip stocks to get a Rs.6 lakh loan for home renovation. He repays the loan in 12 months and retains his portfolio.

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4. Credit Card EMI or Overdraft

What it is?

Using your credit card's EMI facility or overdraft limit for purchases or cash withdrawal.

Why it is better?

• Instant access to funds
• EMI conversion for big-ticket items
• Reward points and offers

Caution: Interest rates can be high i.e. 12% to 24%, if not repaid on time. Use only for short-term needs.

Example: Neha buys a laptop worth Rs.1.2 lakh using her credit card and converts it into 12 EMIs at 14%. She gets cashback and avoids a personal loan.

5. Top-Up Home Loan

What it is?

Top-Up Home Loan is an additional loan over your existing home loan which is offered by the same lender. It is one of the low-interest borrowing options.

Why it is better?

• Interest rates similar to home loans i.e. 7% to 9%
• Long tenure is up to 20 years
• No fresh documentation if you have a good repayment record

Example: Suresh has an ongoing home loan of Rs.40 lakh. He gets a top-up of Rs.10 lakh at 8.2% for his business expansion—far cheaper than a personal loan.

6. Gold Loan

What it is?

Gold Loan is a secured loan where you pledge gold ornaments or coins.

Why it is better?

• Quick disbursal
• Interest rates around 7% to 12%
• Flexible repayment options

Example: Meena pledges 200g of gold to get Rs.8 lakh for her boutique launch. She repays in 18 months and gets her gold back.

7. Loan Against PPF (Public Provident Fund)

What it is?

A short-term loan facility offered against your PPF balance. It is available between the 3rd and 6th financial year of your PPF account.

Why it is better?

• Interest rate is just 1% higher than the PPF interest rate (currently 7.1% p.a.)
• No need to break your long-term savings
• Quick and simple process through your bank or post office

Key Features:

• You can borrow up to 25% of the balance at the end of the 2nd financial year preceding the loan application
• Repayment tenure is 36 months
• Only one loan can be taken at a time; no fresh loan until the previous one is repaid

Example: Anjali has Rs.4 lakh in her PPF account which was opened 4 years ago. She needs Rs.1 lakh for a medical emergency. Instead of a personal loan at 13%, she borrows from her PPF at just 8.1%, repays in 24 months and her long-term savings remain untouched.

Comparison Table: Personal Loan Vs. Alternatives

Personal loans may be convenient but they are not always the smartest financial move. By learning other alternatives or non-traditional loan options like loans against assets, top-up loans or even credit card EMIs, you can,

• Reduce your borrowing cost
• Extend repayment flexibility
• Make better use of your existing resources

By using assets like property or fixed deposits as collateral, individuals can choose any of the smart borrowing strategies that offer lower interest rates. Always compare offers, read the terms & conditions and match the loan type to your financial goal. Whether it is funding a dream vacation or managing a medical emergency, you can borrow in a better way only after knowing all the available options to you.

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