Every investor has the option of raising money through a loan secured by assets by leveraging their current investments. One of the basic mortgages that can provide quick cash is a loan against shares and securities.
It is a need-based solution that can be used for a broad range of assets and is generally offered through both banks and non-bank financial institutions (NBFCs). Throughout the Loan Term, the Borrower will keep receiving credit for bonuses, interest, and securities.
Here are a few features of loan against securities that you must know before applying for it.
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- A loan against securities is a secured loan where shares, bonds, debentures or mutual funds act as collateral.
- A loan against securities has a one-year term, but it is easily extendable.
- The early repayment of debt carries no fees.
- A borrower must be between the ages of 18 and 65 in order to qualify for a loan against securities.
- The borrowed money must be returned within the specified time period. Borrowers have three years from the loan’s issue date to pay any unpaid bills; if not, the lender may file a lawsuit to recover the unpaid debt.
Knowing just the features is not enough for the borrower to grab the key takeaways before applying for a Loan against securities. Therefore, let us now have a look at the key attributes of loan against securities.
No restrictions regarding the use of money:
There are no limitations regarding the use of money borrowed against securities, except for investment purposes. The loan proceeds can be used for a myriad of purposes, like addressing short-term working capital issues, buying a car, or financing children’s future education. Due to this feature, loans secured by assets are viable options for personal loans and credit card loans.
Available as an overdraft facility:
An overdraft facility, which has an authorized credit limit based on the securities pledged, is the traditional format in which a loan against securities is typically provided. Relying on his/her financial needs, the borrower is free to use the entire approved credit under this facility or just a part of it. Borrowers can also use the sanctioned limit and may utilize it as frequently as required until the overdraft permission expires. Interest is collected up until the borrowed sum is returned.
Regular reassessment of pledged securities:
Because of the price fluctuations of market-linked instruments, lenders routinely modify the value of pledged securities. Lenders may consider performing an interim revaluation of securities during a market correction. If significant market corrections prompt the total borrowed amount to surpass the sanctioned credit limit, the borrower must make up the deficit by guaranteeing additional securities or paying the shortfall in cash or a cheque. Keep in mind that if you break this guideline, you may face criminal interest charges of up to 18% annually on the overdrawn sum.
There are some benefits of Loan against Securities that permits you to borrow money to take care of immediate and short-term needs, invest, and preserve your portfolio.
Cheaper interest rates as compared to other types of loans, like personal loans.
If you suffer from a loss of interest in a fixed-term contract, it is not necessary to cancel it prematurely.
By prematurely redeeming mutual fund units or selling shares, you might avoid paying short-term capital gains earnings tax.
Both maintaining your financial plan and engaging in SIPs are completely free.
Both local and NRI FDs are available.
You can pay back the loan in full or in monthly installments.
You only need to pay interest on the amount borrowed and the time used.
You can potentially avoid incurring Short-Term Capital Gains Tax on profits, or you may be compelled to sell at a lower price if the market goes down.
After knowing the key benefits, features and attributes of loan against securities, now the question arises of how to apply for a Loan against Securities.
In exchange for a loan, you must provide security to the bank. The loan balance is based on current rates expressed as a percentage of the market value of your security. Once you’ve selected which securities to pledge, you should apply to the bank. Based on the market value of the security, the bank will evaluate your eligibility and determine whether to approve your loan. Following loan approval, a current account with overdraft protection is established. The borrowing limit of your account is set by collateral such as stock shares, debentures, bonds, mutual funds, and so forth.
One can also apply for an online loan against securities. The entire process is free from hassle. So, to avail of it, the borrower must visit the official website of the bank and click on the “Apply Now” button. The next step is to enter the required information and upload the necessary documents. After the completion of the verification process and document submission, the loan amount will be issued to your bank account.
The loan against shares can be facilitated at a rate of interest as low as 8.5% and it is a fantastic alternative for any long-term investor because it enables you to monetize your investments in order to raise money for business expansion, personal or funds requirements.
Rurash Financials is amongst India’s investment management companies, providing financial solutions to augment the client’s wealth and facilitate building a legacy. We cater to financial services, including customized investment solutions, wealth management, private equity, NRI Investments, Loan Against Securities, Insurance and Fixed Income Investments.