The lack of funds can sometimes stop us from living our lives comfortably even more so when we are in an emergency. Instead of borrowing money from your friends and acquaintances, opting for financing services is the easier way out.
But a common myth that a lot of potential borrowers have is regarding the requirements of loan eligibility. Most people think that only big assets can serve this purpose. However, there are other things like a loan against a policy that can help you in such situations.
In this write-up, we will highlight five reasons for using an insurance scheme to borrow a loan against policy. They will tell you how a simple insurance document can allow you to enjoy many financing services.
1. Serves as collateral
The first and apparent reason why a borrower should consider a loan against the policy is that it serves as collateral. When you are looking to invest in a financing service, you need to put up something as a guarantee. This guarantee allows the financing firm to calculate the risk involved in the transaction. When you are putting an insurance policy as collateral, then they know you would be able to repay the loan. The same can also be judged by your payment history related to the policy EMIs.
2. Quick loan acquiring
The second reason it is highly recommended to borrow a loan against a policy is due to the overall processing period. The common thinking about a financing service is that it takes months to process. However, it is not the same when there is a guarantee provided to the bank in the form of an insurance policy. The process becomes way less time-consuming. Moreover, many financing agencies offer an online application process for such borrowers.
3. Less documentation
The next cause why people are opting for a loan against the policy is due to the documentation required. Earlier, borrowers had to accumulate numerous documents to submit along with their application form. It meant a lot of time would be wasted in completing the paperwork. But now with the help of your insurance policy document, you can get a loan against policy instantly. Apart from this, there are only a few other documents like identity cards and others that are needed.
4. Better interest rates
Having to pay the interest on a loan can unbalance your monthly expenses. Thus, shopping for the lowest possible interest rate is always the first criteria for borrowers. The same can be achieved with the help of a loan against policy. In the case of insurance schemes, loan against insurance policy interest rates are nominal. It is because the transaction is secured when you have a guarantee attached with your loan application.
5. Flexible tenor
A loan that requires fewer documents and is quick to borrow usually has a short-term availability. It is like you can see in the case of a personal loan. But, when it comes to a loan against policy, the tenor can be flexible. It can provide convenience to borrowers and allow them to use the funds for any situation. It happens because of the insurance policy that you have submitted as collateral. However, till the time a borrower does not repay his loan, the insurance policy is manoeuvred by the financing firm.
6. No Need to Liquidate
All of us work very hard to earn the money which we invest in various options including insurances. Further, there is a certain time period required and only after which we can liquidate our investments including insurances. If we do it before that, then not only will it lead to penalties, but the entire purpose of investing in an insurance policy will get defeated.
Also, it is not possible to liquidate such investments on short notice especially when we have a pressing urgency. During such times a loan against insurance policies gives us the freedom to continue using the benefits of our insurance policy and also avail a loan against it.
Thus, you get the benefits of both without the need to disturb any of the two.