Apart from fulfilling short and long-term financial objectives, securities can also serve as reliable collateral for borrowing credit. Many banks and other financial institutions provide a loan against securities at convenient interest rates and flexible tenures.
Thus, when in emergency need of cash, investors can simply opt for a loan by leveraging their holdings. They do not have to sell assets from their painstakingly crafted portfolio while taking care of their financial obligations with ease. To know more about what is loan against shares, Keep reading this article:
What is a Loan Against Securities (LAS)?
To explain in simple terms, a loan against securities is a type of secured loan that investors can get by offering the securities in their Demat accounts as collateral. It is a significantly better option than selling off assets when in urgent need of cash.
With a LAS, the borrower still gets all the benefits of holding the security like dividends, voting rights, etc., while the securities are pledged to the bank.
Features of Loan Against Securities
The features of a loan against securities are as follows:
Use a wide range of securities
One of the biggest benefits of a loan against securities is that individuals can use a wide variety of assets as collateral. They may include shares, insurance papers, bonds, debentures, scrips, fixed maturity savings and mutual fund units.
Hassle-Free Repayment
The loan against securities usually comes with a repayment tenure of up to 36 months. However, it may vary across providers. Moreover, no extra charges are applicable on part prepayment and foreclosure. Thus, applicants can close the loan at their convenience.
High Principal Amount
Most banks offer a maximum principal amount of Rs 10 crores for loans against securities. But applicants must remember that the final loan amount depends upon the value of their pledged securities and the discretion of the provider.
Rapid Application and Disbursal
In the case of most banks and other financial institutions, the application procedure for a loan against securities is completely online. There is no paperwork involved, and loans get approved within 24 hours of application. Additionally, the funds get disbursed to the borrower’s account within 48 hours, making it an excellent credit option during times of crisis.
Lower Interest Rate with no End-Use Restrictions
Being a secured credit facility, a loan against securities is provided by banks at convenient interest rates. In addition, they have no end-use restrictions, enabling borrowers to use the funds for a variety of use cases. This makes them a viable alternative to opting for a personal loan.
Documents Required for Loan Against Securities
The documents required for filing a loan against securities application may differ across providers. Here is a general list based on the applicant type:
Individual applicants
Some of the documents needed for individual applicants are as follows:
- Identity proof – Aadhaar Card, voter ID card, driving license, etc.
- Address proof – PAN card, passport, voter ID card, etc.
- Passport-size photographs
- Demat account holding statements
- 6 months’ bank statements
Company applicants
These are a few of the documents required for company applicants:
- Address proof and PAN card of the director and the organization.
- List of directors
- Article of Association (AOA) or Memorandum of Association (MOA)
- Board Resolution
- Shareholding pattern
- Bank statements or cancel a cheque
Eligibility Criteria for Loan Against Securities
Banks and other financial institutions tend to have some eligibility criteria, which the applicant must meet to get a loan against securities. They may differ across providers at their discretion.
Here are some of the common ones are:
- Security value – Rs 50,000 to 10 lakh
- Employment status – Salaried, self-employed
- Nationality – Indian
- Age – 18 to 65 years
How to Apply for a Loan Against Securities?
The steps to apply for a loan against securities are as follows:
Step 1: Navigate to the preferred lender’s website and click on ‘Loans’.
Step 2: Click on ‘Loan Against Securities’ and select ‘Apply’.
Step 3: Fill in all the necessary details like name, e-mail id, mobile number, etc.
Step 4: Enter the total portfolio value and select the securities type.
Step 5: Provide the current city name and agree to all the terms and conditions.
Step 6: Click on ‘Submit’.
What to keep in mind while Availing Loan Against Securities?
Now, before applying for a loan against securities, applicants should keep a few things in mind. They are as follows:
Determine the LTV Ratio
Before opting for a loan against securities, individuals must know the loan-to-value (LTV) ratio offered by different lenders. Usually, banks and other financial institutions offer around 50% of the value of the pledged securities. However, it can vary at the lender’s discretion.
Check the Approved Securities List
Individuals must also keep in mind that loan providers have a specific list of securities against which they offer credit. Thus, before applying, they must visit the bank’s website to determine the same.
Experts advise that individuals should always calculate how much credit they need before applying for a loan against securities. This helps keep their debt obligations to a minimum while reducing the chances of default.