loan against securities interest rates

Loans Against Securities 101: A Beginner’s Guide

Some tough times call for immediate as well as sudden financial assistance. In such circumstances, loans from financial institutions come to the rescue. If the individual possesses investments, there is an option to take a loan against such assets or securities. 

A loan against securities is usually for a short period, and the quantum of loans is small. You can get these loans against the following collateral:

  • NABARD Bonds
  • UTI Bonds
  • Mutual fund units
  • Demat shares

These are secured loans where the deposits are the collateral. These loans are easily obtainable at every financial institution and can be availed by the customers. They help one to stay afloat in times of financial turmoil.

How do these loans work?

These are usually accessible as an overdraft facility in a customer’s account after the securities are deposited. One can draw money from the report and pay interest only on the loan amount and the period the loan is utilized. Most institutions offer competitive loans against securities interest rates ranging between 10-18%. 

How can one benefit from availing of these loans?

The loan allows borrowers to monetise investments without selling them instantly, thus immediately increasing their net worth. Here are some ways in which an individual can benefit from putting up securities as collateral for a loan:

  • Quick availability
  • Not relying on credit score
  • Flexibility in repayment
  • Low-interest rates 

These benefits make this loan type highly popular and coveted. Being a secured loan, you also get longer tenures and better interest rates, further increasing this loan’s popularity. Ensure you have the best loan experience with informed decision-making and careful consideration of your chosen loan provider!

Must Read: Top Benefits Of Loan Against Securities

Loan Against Securities During Rises in the Stock Market

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A loan against security (LAS) is a secured loan for which you pledge your stock portfolio as collateral. In most cases, the borrowers get 60% of the portfolio’s value as their loan amount. Therefore, if the stock market is on the rise, then the portfolio value will be higher. Hence, an increased loan amount. Furthermore, while the portfolio becomes collateral, the investor will still receive the benefits of their investments in the meanwhile. Some benefits of a loan against security include the following.

  • Overdraft Facility 

Loans against securities are offered in an overdraft facility. An overdraft facility means that after evaluating the portfolio, 40% to 60% of the value is deposited into an overdraft account. The borrower can use this when they deem it necessary, and the interest is only charged on the amount they use.

  • Revaluation

The lender periodically revaluates your portfolio since the stock market is ever-changing. When the stock market is on the rise, there are much fewer chances of compensating lower than the loan’s value. 

  • Interest Rates 

A loan against securities’ interest rate is relatively lower since it is secured. When the stock market is on the rise, your ability to repay the loan with interest is higher, as you are reaping more benefits from the investments in the portfolio. 

Lenders specialises in secured loans like these, offering long tenures and competitive interest rates for your maximum benefit. Availability of this loan gives you flexibility in repayment so you do not feel financially burdened at any point!

Additional Read: 5 reasons why you should go for a Loan Against Securities