A loan against securities is a convenient financial solution that allows individuals to leverage their investments to meet urgent financial needs. By pledging shares, mutual funds, or other securities, borrowers can quickly access funds without having to liquidate their assets. This type of loan is particularly beneficial for those who need immediate cash flow while preserving their long-term investment portfolio.
How to get a loan against securities?
To obtain a loan against securities, follow these steps:
- Select a lender: Choose a bank or NBFC that offers loans against securities.
- Submit application: Fill out the loan application form online or at a branch.
- Pledge securities: Provide details of the securities you wish to pledge.
- Verification and approval: The lender will verify the details and approve the loan.
- Loan documentation and pledge creation: Once loan is approved, customer to execute loan agreement and create pledge on the securities.
- Loan disbursement: Once verified, the loan amount will be disbursed to your account.
What is an instant Loan Against Securities?
An instant loan against securities is a type of loan where you can quickly borrow money by pledging your securities, such as shares or mutual funds, as collateral. It's a convenient way to access funds without selling your investments.
Here's how it works:
- Pledge your securities: You pledge your eligible securities with the lender.
- Loan disbursement: The lender assesses the value of your securities and disburses a loan, typically a percentage of the value.
- Repayment: You repay the loan, along with interest, over a specified period.
Types of securities eligible for instant loans
Instant loans against securities offer a quick and convenient way to access funds by pledging your investments as collateral. Here are some common types of securities that can be used for such loans:
1. Loan Against Shares
- How it works: You pledge your shares as collateral to secure a loan.
- Eligibility: Listed equity shares of Indian companies.
- Benefits: Quick disbursal, lower interest rates compared to unsecured loans, and the ability to retain ownership of the shares.
2. Loan Against Mutual Funds
- How it works: You pledge your mutual fund units as collateral to secure a loan.
- Eligibility: Units of most mutual fund schemes.
- Benefits: Quick disbursal, lower interest rates, and the ability to continue earning returns on your investments.
3. Loan Against Bonds
- How it works: You pledge your government or corporate bonds as collateral to secure a loan.
- Eligibility: Government bonds, corporate bonds, and debentures.
- Benefits: Lower interest rates, tax benefits on interest payments, and the ability to retain ownership of the bonds.
4. Loan Against Insurance Policy
- How it works: You pledge your life insurance policy as collateral to secure a loan.
- Eligibility: Term insurance, endowment plans, and whole life insurance policies.
- Benefits: Quick disbursal, competitive interest rates, and the ability to continue the insurance policy.
How does it work?
When you apply for a loan against securities, the lender evaluates the value of your pledged securities and determines the loan amount based on a Loan-to-Value (LTV) ratio, typically it is up to 50%. The securities remain in your account but are marked as collateral. Interest is charged on the loan amount, and you can continue to receive dividends and benefits from your securities. The loan can be repaid in flexible terms, and once repaid, the pledge on the securities is lifted.
Benefits of loan against securities
- Quick access to funds: Get funds without selling your investments.
- Retain ownership: Continue to benefit from dividends and price appreciation of your securities.
- Flexible repayment: Choose from various repayment options to suit your financial situation.
- Lower interest rates: Typically lower than unsecured loans due to the collateral provided.
Documents required
To apply for a loan against securities, you will need the following documents:
- Identity proof: Aadhaar Card, Passport, Voter ID, or Driving Licence.
- Address proof: Utility bills, Passport, Aadhaar Card, or Voter ID.
- Demat account statement: Showing the details of the securities being pledged.
- Bank statements: Recent bank statements for verification.
Eligibility criteria
Eligibility criteria for an instant loan against securities generally include:
- Age: Applicant should be between 21 and 70 years.
- Securities: Acceptable securities include shares, mutual fund units, bonds, and debentures.
- Income proof: Some lenders might require proof of income to assess repayment capacity.
Interest rates and charges
Interest rates for loans against securities are typically lower than unsecured loans, starting from around 9-11% per annum. Factors influencing the interest rates include the type of securities pledged, the loan amount, and the borrower’s credit profile. Additionally, lenders may charge processing fees, documentation charges, and other miscellaneous fees. It is advisable to compare offers from different lenders to find the best terms and conditions.
