Loan against securities is a secured loan that you can take by pledging your assets to get a loan. Borrowers usually use property, fixed deposit, shares, mutual funds, bonds and other marketable securities as collateral. For loan against securities, the lender will assess the value of the provided collateral and will offer a loan based on a percentage of that value. Failure to repay the loan will result in the lender seizing the collateral to recover the outstanding amount.
Borrowers can enjoy a higher loan amount with flexible repayment terms. The interest rates are usually lower as this loan is a secured loan and the collateral reduces the lender’s risk.
Why Take a Loan Against Securities
Borrowing against securities can be a strategic financial move, especially for individuals who have lower credit scores or a limited credit history. It offers borrowers an opportunity to get financial assistance by leveraging their valuable assets without the need to sell them.
Loan against securities offers a significant advantage to borrowers as it is a secured loan, offering lower interest rates and high loan amount. The flexibility in repayment terms also allows borrowers to choose a tenure that aligns with their financial capabilities.
Interest Rate & Fees of Loan Against Securities
The loan against securities interest rates will depend on a number of factors such as the lender, the type of collateral, loan amount and more. Generally the interest rates for these loans are lower compared to unsecured loans. There are also other charges and fees involved with these loans. Here is a general overview of the interest rates and charges offered by lenders for loan against securities:
| Interest rate | 8.00% – 20.00% p.a. |
| Processing fees | Up to 4% |
| Late payment fees | Up to 3% |
| Renewal fee | Up to 1.18% |
| Other charges | As applicable |
Note: These rates are indicative and subject to change. Always check with the bank for the most up-to-date information before making any investment decisions.
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Types of Loan Against securities
Loan Against Mutual Funds: This loan type will provide an opportunity for you to access immediate funds without redeeming mutual fund units. Helping you maintain your investment positions while meeting urgent financial needs.
Loan Against Shares: Get secured loans by pledging your stock market investments as collateral.
Loan Against Bonds: A loan against bonds is a financial arrangement where you can use your bond investment as collateral to secure a loan.
Loan Against Insurance: This type of loan provides a unique financing solution for you to liquify your insurance policies while maintaining ownership.
Loan Against Property: Putting your property as collateral will provide you with a substantial loan amount that you can utilise to fulfil your financial requirements.
Loan Against Fixed Deposits: This allows you to pledge your fixed deposits as collateral, providing quick and accessible funds.
Loan Against Gold: Pledging gold jewellery or ornaments to secure a loan will provide you with a quick and convenient financing option.
Eligibility Criteria For Loan Against Securities
The eligibility criteria are crucial components of the loan application process that are set by lenders. These requirements are important to understand to ensure a smooth application process. The criteria will also vary depending on the type of securities pledged. The Although the criteria will be different from lender to lender, here are some general requirements:
- Must be an Indian resident between the age of 18 – 70 years old.
- Must hold approved securities.
- NRIs are eligible
- Must be salaried or self-employed.
- Corporates/ HUF/ LLP/ Partnership/ Trusts/ Sole proprietorships can also apply.
Documents Required For Availing Loan against securities
Securing a loan against security involves proper documentation. The documents required will depend on the lenders as well as the type of security. Here are the documents required to avail loan against securities:
- Application form
- Identity Proof: Voter ID, Aadhaar card, Passport, Driver’s licence.
- Signature Proof: PAN card
- Address Proof: Rental agreement, Utility bills, Electricity bills etc.
- Income Proof: Three months bank statements and ITR of last 2 years.
- Statement of demat account or security holdings.
- Request letter for pledging of securities.
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Loan Amount for Loan Against Securities
The loan amount for loan against securities is determined by the value of the collateral provided by the borrower. Lenders will assess the market value of the collateral and the loan amount will be a percentage of that value. The specific percentage will vary based on factors such as type of collateral, loan policies of the lender and the borrower’s creditworthiness. Typically, a lender will provide loan amounts of up to 50% – 80% of the value on the securities pledged.
To determine the loan amount you can get from your securities, you can use an online loan amount calculator which will determine the potential amount using the Loan-to-value ratio. These calculators are user-friendly and will require you to only input the appraised value of your collateral.
To manually calculate, you can use the following formula:
LTV = (Loan Amount / Appraised Value of Collateral)
Features & Benefits of Loan Against Securities
A loan against securities stands out as a versatile financing solution, offering a range of features and benefits that cater to diverse financial needs. These features and benefits are:
How to Apply for Loan Against Securities
The procedure to apply for loan against securities will differ from lender to lender, however, here are the general guidelines on how you can apply for this loan:
1. Choose your preferred lender
2. Visit their website or branch
3. Choose the type of security you’d like to pledge.
4. Fill in the loan application form.
5. Submit all the necessary documents.
6. Wait for approval.
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