Are you looking for a loan and have investments in shares or securities? Loan against shares and securities is a popular financial product that allows you to borrow funds against the value of your investments. It is a suitable option for those who need immediate cash but do not want to liquidate their investments.
In this article, we discuss everything you need to know before opting for a loan against shares and securities, including the interest rate, eligibility criteria, loan tenure, and other important aspects.
What is a Loan Against Shares and Securities?
A loan against shares and securities is a type of secured loan that is offered by banks and other financial institutions. It allows you to borrow funds against the pledge of your shares, mutual funds, bonds, and other securities. It is a convenient way of accessing funds without having to sell your investments.
How Does it Work?
The process of availing a loan against shares and securities is relatively simple. You need to pledge your securities with a lender, who then provides you with a loan against a percentage of their market value. The loan amount may vary from lender to lender, but it can generally range from 50% to 80% of the total value of your securities. The loan is disbursed to your account, and you can use it for any purpose like business expansion, education, medical expenses, or debt consolidation.
What are the Key Benefits of This Loan?
- Quick Access to Funds: A loan against shares and securities provides you with immediate access to cash without having to sell your investments. This saves you time, effort, and transaction costs associated with selling your securities.
- Lower Interest Rates: The loan against shares interest rate is comparatively lower than other unsecured loans like personal loans or credit card loans. Since it is a secured loan, lenders are more comfortable in offering you better terms and lower rates.
- Flexible Repayment Options: Repayment options for this loan type are highly flexible with tenure ranging from 12 months to 36 months. You can opt for a repayment schedule that matches your income inflows.
- No Restrictions on Usage: The loan proceeds can be used for any purpose. Unlike other loans, you do not need to disclose the usage of the loan amount.
What are the Eligibility Criteria?
The eligibility criteria for availing a loan against shares and securities vary from lender to lender. Some of the common requirements include:
- Age: You should be of legal age to enter into a contract, i.e., 18 years or above.
- Securities Ownership: You should be the owner of the securities you are pledging.
- Valid Demat Account: You should have a valid Demat account with a registered broker.
- Ownership Period: The ownership period of the securities for which the loan is sought should be as
per the lender’s requirements.
- Market Value: The market value of the securities should be sufficient to cover the loan amount.
- Credit Score: The credit score plays a crucial role in determining your eligibility for a loan against shares and securities.
What is the Interest Rate for this Loan?
The interest rate for a loan against shares and securities is generally lower than other unsecured loans. It can range from 8% to 20% depending on the lender, loan amount, tenure, and security offered. The interest rate is usually fixed for the entire loan tenure, giving you clarity and stability in your loan repayments.
What are the Repayment Options for This Loan?
The repayment options for a loan against shares and securities are highly flexible. You can opt for a repayment tenure ranging from 12 months to 36 months. The loan tenure offered may vary from lender to lender, but most lenders offer you the option to choose the repayment schedule that best suits your income flows and financial goals.
What are the Charges for this Loan?
Apart from the interest rate, lenders charge certain fees and charges on the loan against shares and securities. These charges may include processing fees, prepayment charges, penal interest, and foreclosure charges. It is important to read the terms and conditions of the loan agreement carefully and understand the charges before availing the loan.
In conclusion, a loan against shares and securities is a convenient and cost-effective way of financing your immediate cash needs without losing your investments. However, you should be mindful of the terms and conditions, eligibility criteria, and charges before committing to this loan. You should also compare the offers from various lenders to get the best rate and terms. It is always advisable to consult with a financial advisor before availing any loan.