The festive season is round the corner. If you are thinking of making a big purchase during this season but the thought of meeting your requirements through high-interest personal loans or credit cards is bothering you, take heart. Instead of going for such expensive loans, you can raise money at much cheaper rates. This is possible by pledging your investments.

"Borrowing against these securities is advisable compared to a person availing of a personal loan or who has revolving credit card dues, where the interest rates will be much higher," says Rajesh Dalmia, a certified financial planner. You can consider the options listed below, but we hasten to add that smart spenders always save for their big purchases:

Gold:

In the past few years, local jewellers or neighbourhood pawnshops have replaced banks in disbursing loan against the yellow metal. You can get 70-80% of the value of gold pledged as loan. The loan involves lesser documentation and is disbursed within a few hours.

Banks also offer an overdraft facility where you can withdraw money as and when required. In an overdraft facility, the interest is charged on the amount utilised daily and is debited at the end of every month. In case of term loans, most banks ask for repayment at maturity instead of monthly payments along with interest.

Insurance Policy:

You can meet your short-term requirement by availing a loan against your insurance policy as well. The policy can be pledged either to the insurer or bank. However, this facility is available only against policies which accumulate cash value like endowment plans. The loan value depends on the surrender value that the policy acquires at that time.

This is 90% of the surrender value or 85% of the paid-up value of the policies. So, if you are insured for `1 lakh through a 20-year plan and have paid 13 annual premiums, you can easily go for a loan of `50,000 against it. "The amount of loan provided against a policy is proportionate to the number of premiums paid. Higher the number of premiums paid, the bigger will be the loan amount," says Rajesh Dalmia, a Kolkata-based certified financial planner.

The rate of interest varies across lenders. LIC, for instance, charges 9% interest half-yearly. With State Bank of Mysore, you have to shell out 12%. You can repay the loan either with interest or continue paying the interest and allow the principal to be deducted at the time of the claim. The minimum period for which a loan can be granted is six months from the date of its payment.

Apart from traditional policies, you can also avail of a loan against Ulips. New Ulips introduced by a few insurers carry a clause that lets you take a loan against them.

Public Provident Fund:

You can take up to 25% of the amount lying in your PPF account at the end of the second preceeding financial year as a loan through any branch of State Bank of India that you have an account with. This can be availed of between the third and sixth year.

The repayment has to be done in 36 monthly instalments and you pay 1% interest every month. If you are unable to repay, the interest is charged on the outstanding sum at 6% per month. The interest has to be paid in not more than two instalments after the loan amount is fully repaid. You can also avail of a second loan if the first one is fully repaid. "PPF is a kind of retirement saving and any loan should be taken only in case of emergency or urgent requirement," adds Dalmia.

Source: The Economic Times