Life is uncertain. There are many moments when you get caught off guard. At that moment, you need money, you need your funds to help you and when in need, you always look towards your investments for help. However, liquidating your securities is not the only way out; you can also apply for a loan against securities.
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What is a Loan Against Securities?
It is a loan provided by banks or NBFCs (Non-Banking Financial Companies) by taking your securities or deposits as collateral. Remember, banks have pre-defined securities, and only those securities get accepted as collateral.
There are innumerable reasons for the investments you make, like, for your dream home or long-term retirement investment fund. The goal for investing could be anything, but you need to remember that liquidating all your securities should be the last option.
Focus upon the following things while applying for a loan against securities:
Loan Amount & Purpose of Your Loan
Sometimes, we may treat an occurrence as an emergency because of its timeliness. As a result, defining the aim of your loan is crucial. It may assist you in determining how much loan you require and whether it is necessary. Also, keep in mind that you will not receive the entire value of your securities as a loan. The sanctioned amount varies from 60 to 80 per cent of the total value. For instance, if you have securities worth 20 lakhs, the bank or NBFC providing you with a loan will approve you an amount of 12 to 16 lakhs.
Recognize the Best Lender
Several banks and non-bank financial institutions (NBFIs) now provide loans secured by securities. It gets tough to choose amidst all the tempting loan offers. For your benefit, you must pick the lender who will give you the desired amount for your security along with a shorter repayment period.
Know the List of Collaterals
Once you have decided to borrow money from a bank, visit their website and understand the list of collaterals they allow. As stated above, there are specific securities against which banks give you loans. You need to know the list beforehand.
Here are some usual collaterals against which you can avail the loan
- Bank Deposits
- NABARD Bonds
- UTI Bonds
- Insurance Policies
- Mutual Fund Units
- Non-convertible Debentures
- Demat Shares
Check Your Eligibility
There are specific criteria that you must adhere to in order to avail of the loan. Here are some usual eligibility criteria:
- You must be a resident of India
- You must be between 21 and 65 years of age
- You must be a salaried employee in a private or public enterprise, or in the case of self-employment, you must demonstrate a regular source of income
- You must have a CIBIL Score of 750 or more
- You must have the required securities and meet the specific requirements of the bank you want the loan from
Advantages of Availing a Loan Against Securities
High Loan Amount
Mainly depending on the market value of your securities, banks or NBFCs offer loans up to ₹ 10 Cr, much higher than any other option like a personal loan or credit card.
No Pre-payment Charges
In the case of personal loans, you have to pay a percentage of your loan as a pre-payment charge; you do not have to do so here. You can repay the whole loan amount whenever you want, without incurring additional fees.
Lower Interest Rate
The interest rate of loans against securities is as low as 9% and ranges up to 15%. While, in the case of personal loans or credit cards, it is much higher.
The payback is as easy as it can get. Pay only the interest in EMIs (Equated Monthly Instalment) and later pay the actual loan amount whenever you want during the loan tenor.
Earn from Securities
Even if you have kept your securities as collateral, you will still get all the benefits of your investments as you used to get them before. Hence the interest earned on all the securities will be credited to you, and therefore, you can obtain from it despite it being collateral.
Thus, if you have an unexpected financial need, you could always take out a loan against your securities. Diluting your assets is not a viable choice. Your investments are for a safe future; let them grow since they will come to your aid at any time.