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Loan Against Securities

There are numerous financial commitments that one needs to fulfill as time goes by. Along the way, you might require sudden financial assistance for various reasons. However, not everyone has cash ready at hand. Instead many do have assets that can be liquidated. One way you can avail of a loan is by pledging your security. This is one of the most secure ways to avail of a loan as you are provided with stable fundings. This mode of loan ensures financial help without any loss of your securities.

What is Loan Against Securities?

A loan against securities is a type of loan which is granted to you in return for pledging any of your security. It is also referred to as a loan against shares. It is a kind of secured loan since you're pledging your securities to avail of the loan. Loan against security can be granted against the securities mentioned below:

  • Mutual Funds

  • UTI Bonds

  • Insurance Policies

  • NABARD Bonds

  • Demat Shares

  • Non-convertible debentures

  • National Savings Certificate

How Does Loan Against Securities Work?

A loan against securities supports to avail timely financial aid instead of selling off your shares or securities with urgency. Generally, an active account is opened in the name of the borrower, and the rate of interest is determined on the amount which the borrower debits during the utilization period. By pledging your securities and shares as collateral, you receive steady financial aid when you require it the most. This way even during your financial burdens, you do not end up losing your assets.

Key Features of Loan Against Shares

There are key features of a loan against securities, which are as follows:

  • A loan against shares is a secured type of loan, since shares, mutual funds, or debentures are provided as collateral.

  • The incumbency of the loan against security is 1 year and is renewable.

  • Generally, the rate of interest varies from 12%-15% (varies from bank to bank).

  • The processing fee of the bank is generally charged at the rate of 2% of the total loan amount.

  • The amount of loan depends on the type of security or share.

  • There are no additional charges for the repayment of the loan.

  • The loan should be paid in a fixed tenure of 1 to 3 years, and if the borrower is unable to pay it, the company is entitled to file a case against the borrower. Then, the borrower will be granted a year of time to repay the remaining amount with certain added interests.

Key Features of a Good Security

You must know what makes a loan against security worth more credits and trustworthy before availing of it. The key features of a good security are as follows:

  • The security offered should be marketable and should not incur any kind of loss. Also, the market value of the security should be constant and steady and should not fluctuate much, as it will harm the credibility of the security.Security such as gold, silver, manufactured goods, raw materials and liquid assets are preferred by lenders as a good collateral.

  • The security which has been submitted should be easily transferable. Immovable properties are not easily transferable, therefore, are not much preferred by the lenders.

  • The security submitted should be free of any disputes.

Eligibility Criteria for Loan Against Securities

To apply for a loan against shares, you need to fulfill certain eligibility criteria. They are as follows:

  • You must be an Indian resident.

  • You must be a minimum of 21 years old.

  • You must either be a salaried employee or self-employed.

  • The financial institution will approve the security against which you are availing of the loan.

Documents Needed to Avail Loan Against Securities

The documents required to avail a loan against securities vary from a salaried employee to a self-employed individual. If you are a salaried employee then you must submit the following documents:

  1. Identity and address proof

  2. Bank statements of the last six months

  3. Canceled cheque of the bank

  4. Demat account status and records

  5. Income proof

  6. Photograph

If you are self-employed, then you must submit the following documents:

  1. Identity and address proof

  2. Bank statements of the last six months

  3. Canceled cheque of the bank

  4. Demat account status and records

  5. Income proof

  6. Balance sheet and profit & loss account

  7. Office address and business proof

  8. Photograph

Things to Consider Before Taking the Loan Against Securities

Before you avail of a loan against securities, there are certain things you need to take into consideration. They are as follows:

  • You should ensure you fulfill the eligibility criteria before applying for the loan.

  • You must ensure that the financial institution accepts various types of investment and securities for the loan such as mutual funds, shares, insurance policies, etc.

  • You should select a financial institution that sanctions a high amount of loan against the collateral along with low interest and low processing fee.

  • You should select a financial institution that provides the most flexible repayment tenure. Typically, the tenure period varies between 1-3 years, however, it also depends on the loan amount availed by you.

  • You must maintain your credit score and history so that the lender offers you the loan at an affordable interest rate.

A loan against shares is one of the best ways to ensure financial assistance during a time of need without having to lose any of your assets. Both lenders and borrowers prefer this mode of loan as both parties are promised repayment. This is also what makes it one of the most secure modes of loan. If you're not eligible for a loan against shares, then you can opt for a Personal Loan available on Finserv MARKETS. The Personal Loan can be availed through an easy application process. You can also reap the benefits of competitive interest rates.

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