Financial requirements that call for an unwarranted free flow of cash usually come without warning. In such cases of emergencies, arranging for liquid funds can be challenging. In such cases, individuals either liquidate their investments or opt for loans with higher-interest rates, like a personal loan. However, if you wish to make financial arrangements without liquidating your long-term investments or opting for high-interest-rate personal loans, then taking a loan against shares and securities would be a best option.
Loan against shares and securities is a flexible liquidity option that is widely used as a means of borrowing money in India. You can borrow funds by pledging your securities such as equity shares, mutual funds, bonds, bank deposits, or insurance policies to avail of a loan. This type of loan is especially useful for those who need funds urgently but wish to retain their portfolio and the benefits that come with their securities.
However, there are a few things to consider while availing loan against securities to ensure a hassle-free borrowing experience.
Things to consider while taking loan against securities
Read on to know more about 5 important rules to follow while taking a loan against securities.
1. Choose the right securities to pledge
You can avail of a loan against securities by pledging shares, mutual funds, bonds, or insurance policies. However, you must note that different types of securities will offer different interest rates. This is because different securities will have different range of risks and benefits attached to them. While taking a loan against shares and securities, it is vital to go for the right securities to pledge. For example, stocks are more volatile than bonds or insurance policies. Therefore, if you pledge stocks, the value of the securities pledged may fluctuate, and you may need to pledge additional securities to maintain the margin requirements. A minimum of 50% Loan-To-Value (LAV) ratio is always required to be maintained for loan against shares facility.
2. Compare interest rates, processing fees, and foreclosure charges
Interest rates, processing fees, and foreclosure charges vary from lender to lender. After deciding which security to pledge your next step should be to compare interest rates and processing fees offered by different lenders. While interest rates for loan against securities may be lower than personal loans or loan against credit cards, it is important to calculate the total cost of borrowing including interest rates, processing fees, and other charges before availing the loan. You can also use online loan calculators to compare the total cost of borrowing from different lenders to make the right call.
3. Make note of the documents required
Usually, a loan against securities requires the borrower to submit very few basic documents, however, this also varies from lender to lender. To ensure a hassle-free borrowing experience it is best to keep basic documents like KYC documents, income proof, Demat account details, etc. and other related documents ready. Once you provide all the documents and fulfil all the conditions as stipulated by the lender, your loan can be processed. You can now apply for a loan against securities online with Bajaj Finance Limited.
4. Consider loan amount and tenure
It is best to align your loan with your requirements and repayment capacity. Hence, before opting for a loan you must evaluate your requirements, loan options, and repayment strategy with your financial advisor. Based on this you can decide upon the loan amount and tenure, to ensure a smooth borrowing experience.
These are a few things to consider while availing loan against securities. By following these rules, you can borrow within your financial parameters, manage risks, and minimise the total cost of borrowing in a hassle-free manner. The loan against securities offered by Bajaj Finance Limited makes borrowing simple!
