Understanding Loans Against Securities

The benefits of loan against securities, a banking instrument, is unparalleled.

There are many banks and NBFCs that offer loans against securities on specific stock market investments. These loans are easy to apply and can get you a pretty high amount.

The application process for a loan against securities is just like applying for any other loan. You have to fill out a form with your details and submit it with the necessary documents. Once the verification is complete, the lender will sanction the loan amount in your bank account which can be utilised by you according to your needs.

Opting for loan against securities comes with advantages like low interest rates, EMIs, and a comparatively high loan amount.

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Things that you should be aware of while applying for a loan against securities.

1. Loan amount: While most banks claim that they offer high loan amount, there is a catch. The banks do offer high amount loans, but the amount is dependent on the value of your collateral. Most of the banks offer loan amounts that are 60-80% of the loan-to-value amount. This means that you might not get the loan amount equivalent to your investment’s value. For e.g. If you keep INR 10 lakh worth of mutual fund units as collateral for the loan, you might get a loan approval for amounts like INR 6 lakh to 8 lakh.
2. List of collaterals: Lender’s offer loan only on particular investment instruments like Insurance Policies, Non-convertible Debentures, NABARD Bonds, UTI Bonds, Mutual fund units, Demat Shares and National Savings certificate or KVP (in Demat form). It is important that you refer to your lender’s collateral list before applying for a loan.
3. No EMIs or Postdated cheques: There are some banks and NBFCs that offer these loans in the form of an overdraft or current account. Here, the credit is secured by the collaterals you keep with the lender, and this is why you get a lower interest rate. Moreover, the interest is levied on only for the time you take to repay the loan.
4. No pre-payment charges: With loan against securities, you don’t have to worry about the pre-payment charges. As the loan is granted on the guidelines similar to an overdraft, you can repay the loan anytime you want.
5. Charges and fees: With so many benefits being offered, there is one setback that you might have to suffer – charges. Loans often come with charges like processing fee, annual maintenance fee and sometimes closure charges. But in loan against securities, there are many other charges that you have to pay apart from these. First of all, you will be charged a processing fee of 0.15% to 1%. Then you might have to pay the pledge and de-pledge fee, which is followed by the renewal charge or the annual maintenance charge which can range from INR 1,000 to 10,000. You might also have to pay ATM facilities, cash deposits or withdrawals, NEFT or RTGS charges.

To lend or borrow securities at an attractive rate of interest, avail LAS with PL. Get started by opening a demat account and explore more here.