Articles
How to avail Loan Against Securities
by Shruthi K. Finance AdvisorInvestments such as deposits, bonds, mutual funds, equity shares, etc., have a low liquidity ratio. Thus, in the face of an emergency, you might not be able to sell these assets and liquidate your investment. Even if these assets are sold to receive the funds, rebuilding the investment again will become a hassle. In this scenario, the best option is to avail Loan Against Securities (LAS).
What is Loan Against Securities?
Loan against securities is a service offered by NBFCs and Banks, wherein the securities owned by an individual acts as a collateral for offering loan. Banks have a list of pre-approved securities which can be pledged in exchange for a loan. In order to avail the loan, a lien in created against the security offered. The loan amount will be determined based on the value of the securities that are pledged. Thus, loan quantum can range from 50% - 90% of the asset value.
Equity shares receive a lesser loan amount when compared to assets such as bank deposits. This is because equity shares are highly volatile and its value may drop with market fluctuations. It becomes risky to consider its present value and offer a loan against the same. In order to avail a higher loan amount, the borrower can pledge a mix of securities.
Process involved in availing loan against securities
The borrower has to open a current account with the bank first. Once this account is active, a borrowing limit will be placed on the same, which is determined based on the value of the securities that are pledged as collateral. The borrower can then withdraw funds from the account as and when required and repay the amount by way of deposits to the account. This process is very convenient and it offers high flexibility to investors who need an immediate loan.
Once the amount borrowed reaches the credit limit sanctioned on the account, the borrower cannot withdraw any more funds. Until then, he/she can withdraw the loan amount as he/she chooses. This can be via internet banking, ATM withdrawals, etc. Repayment flexibility is also given – cash can be credited into the account and this is treated as the repayment of amount utilized so far. There is no EMI or due date for payment.
Fees and Charges
Apart from the interest levied on the loan, other additional charges such as processing fees, overdraft fees, stamp duty on loan agreement, account maintenance charges, etc. are levied on all loans offered against securities by banks.
Interest applicable on loan against securities
When compared to a credit cards or regular personal loan schemes, loan availed against securities have a lower rate of interest. This is because the bank is offered a collateral security and therefore is assured of the borrower’s creditworthiness and repayment capacity.
Eligibility for Loan against Security
Loan against security is offered to residents of India when they fulfill the given criteria. This facility is limited for NRIs and HUFs – they have to enquire as to whether they are eligible for the same, with the Bank of their preference.
What is Loan Against Securities?
Loan against securities is a service offered by NBFCs and Banks, wherein the securities owned by an individual acts as a collateral for offering loan. Banks have a list of pre-approved securities which can be pledged in exchange for a loan. In order to avail the loan, a lien in created against the security offered. The loan amount will be determined based on the value of the securities that are pledged. Thus, loan quantum can range from 50% - 90% of the asset value.
Equity shares receive a lesser loan amount when compared to assets such as bank deposits. This is because equity shares are highly volatile and its value may drop with market fluctuations. It becomes risky to consider its present value and offer a loan against the same. In order to avail a higher loan amount, the borrower can pledge a mix of securities.
The borrower has to open a current account with the bank first. Once this account is active, a borrowing limit will be placed on the same, which is determined based on the value of the securities that are pledged as collateral. The borrower can then withdraw funds from the account as and when required and repay the amount by way of deposits to the account. This process is very convenient and it offers high flexibility to investors who need an immediate loan.
Once the amount borrowed reaches the credit limit sanctioned on the account, the borrower cannot withdraw any more funds. Until then, he/she can withdraw the loan amount as he/she chooses. This can be via internet banking, ATM withdrawals, etc. Repayment flexibility is also given – cash can be credited into the account and this is treated as the repayment of amount utilized so far. There is no EMI or due date for payment.
Fees and Charges
Apart from the interest levied on the loan, other additional charges such as processing fees, overdraft fees, stamp duty on loan agreement, account maintenance charges, etc. are levied on all loans offered against securities by banks.
Interest applicable on loan against securities
When compared to a credit cards or regular personal loan schemes, loan availed against securities have a lower rate of interest. This is because the bank is offered a collateral security and therefore is assured of the borrower’s creditworthiness and repayment capacity.
Eligibility for Loan against Security
Loan against security is offered to residents of India when they fulfill the given criteria. This facility is limited for NRIs and HUFs – they have to enquire as to whether they are eligible for the same, with the Bank of their preference.
Sponsor Ads
About Shruthi K. 
Finance Advisor
58 connections, 0 recommendations, 159 honor points.Joined APSense since, May 18th, 2015, From Hyderabad, India.
Created on Dec 31st 1969 18:00. Viewed 0 times.
Comments
No comment, be the first to comment.
