How Does a Loan Against Securities Work?
Opting for a loan against securities is an excellent method for individuals to avail of funds during times of need. It prevents them from selling off securities in a haste to acquire funds.
The financial assistance provided by a loan against securities depends on the value of the pledged securities. In most cases, a current bank account is established in the borrower’s name, and the interest rate is calculated depending on the amount withdrawn and the period of utilisation.
When the customer pledges securities, they acquire steady cash immediately. This prevents them from selling off assets. Moreover, it facilitates them to benefit from numerous bonuses and dividends.
Things to Keep in Mind While Applying for a Loan Against Securities
Acquiring a loan against securities is an excellent method of getting funds. However, there are numerous things that every individual should keep in mind while applying for a loan against securities. Here are some of the most important ones:
Loan Amount & Purpose of Your Loan
A loan against securities can be acquired for numerous financing needs. However, it would be best if an individual knows the exact amount of loan they require beforehand.
Moreover, they should also determine and keep in mind the purpose of taking the loan. Doing so will facilitate them to make intelligent financial decisions once the loan amount has been sanctioned.
Recognise the Best Lender
Numerous lenders are readily available on different platforms and financial institutions to offer a loan against securities to customers. However, not all of them offer the same benefits. Hence, individuals should compare the benefits offered by different lenders and opt for the best one.
Know the List of Collaterals’
Even though the list of securities accepted as collateral for a loan against securities is common, numerous lenders have different policies regarding eligible securities. Hence the customer should know the ins and outs regarding the list of collaterals accepted before proceeding with the loan application.
List of securities eligible for the loan
- Insurance policies
- Non-convertible debentures
- NABARD Bonds
- UTI Bonds
- Mutual fund units
- Demat shares
- National Savings Certificate or KVP, these are accepted in Demat form only.
Check Your Eligibility
Every loan-providing outlet has criteria individuals need to fulfil to proceed with the loan application. Hence, to ensure that they get a loan against securities without any hassle, individuals should ensure that they fulfil the lender’s eligibility criteria.
Documentation Required for Securing a Loan Against Securities
Borrower who is salaried must submit the following documents:
Salaried individuals must provide the following documents to acquire a loan against securities:
- PAN Card
- Identity Proof
- Address Proof
- Recently-taken photograph
- Bank statement of last 6 months
- A canceled cheque
- Demat account statement
- Proof of Income
Borrower who is self- employed must submit the following documents:
Self-employed individuals must provide the following documents to acquire a loan against securities:
- PAN Card
- Proof of Identity
- Proof of Address
- Bank statement of last 6 months
- A cancelled cheque
- Demat account statement
- Proof of Income
- Balance Sheet
- Account of profit and loss
- Proof of address
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Proof of business existence
Features of Loans Against Securities
Here are some of the most prominent features of loans against securities:
- The loan is a secured loan.
- Customers can offer debentures, shares, bonds, mutual funds, etc., as collateral.
- The tenure of a loan against security is 12 months.
- Depending on the outlet and lender, the interest rates vary between 12% and 15%.
- The processing fee is 2% of the total loan amount.
- The amount of loan offered to a customer depends on their security’s value.
- The borrower’s age must be between 21 and 65 years.
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Borrowers must repay the loan amount within a fixed period.
Advantages of Availing a Loan Against Securities
Here is a look at some of the advantages of acquiring a loan against securities:
High Loan Amount
Individuals can use their shares, mutual funds, debentures, etc., as collateral and avail of a loan of up to Rs. 20 lakhs to fund their financial obligations. Opting for a loan against security is an excellent way of acquiring steady cash easily.
No Prepayment Charges
Borrowers can conveniently pay back the borrowed amount of a loan against securities early without additional prepayment charges.
Lower Interest Rate
As opposed to other variants of loans, loans against securities feature lower interest rates, and it varies from lender to lender. Hence, borrowers do not need to pay interest in massive amounts.
Flexible Repayment
Loans against securities feature easily-renewable tenures and fixed maturity plans. Moreover, loan-providing outlets and lenders offer numerous flexible repayment options, which significantly benefit the customer.
Earn from Securities
To acquire a loan against securities, individuals need to pledge securities as collateral. This prevents them from selling off important assets to acquire funds and, thus, facilitates them to earn from securities without getting rid of them for good to fulfil financial obligations.
Digital Loan Against Securities
A digital loan against securities involves customers pledging mutual fund investments online and getting an overdraft limit set in their bank account.
Opting for a digital loan against security facilitates users to get hold of funds immediately, retain mutual fund returns without liquidation, etc. Individuals can acquire an instant loan in the form of a digital loan against securities using the Internet banking facility and fulfil financial obligations.
From Where can You Take a Loan Against Your Securities?
There are numerous which offer individuals loans against securities. For instance, Axis Bank, HDFC Bank, State Bank of India, Kotak Mahindra Bank, and many more banks offer loans against securities. All an individual needs to do is go to the nearest branch of their respective bank and apply for a loan against securities. Besides this, interested individuals can also take loans from lenders on different platforms.
Who can Avail a Loan Against Securities?
Any individual who fulfils the given criteria is eligible for a loan against security:
- They should be an Indian citizen.
- They should not be less than 21 years of age.
- They should be either a self-employed or salaried individual.
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The security they wish to pledge as collateral should be approved by the bank.
Features of good security are:
A good security has the following features:
- It should not incur losses.
- Its value should not be volatile, i.e., it should have a stable and steady overall value.
- It should be easily marketable.
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It should be disability-free.
Why choose Yubi?
Even though numerous platforms offer loans against securities, Yubi is the preferred platform since it offers numerous benefits. Firstly, the renowned platform features over 50+ lender options, each leading to the best bank rates. Secondly, it offers up to 5 times faster turnaround time. Moreover, multiple Yubi lenders consider liquid income. Hence, Yubi is the perfect outlet for any individual looking to acquire a loan against securities for fulfilling financial obligations.
FAQs
Customers can avail of a loan up to 20 lakhs, depending on their pledged security’s value.
Yes. Most banks and online outlets offer customers the option of foreclosing a loan against securities.
Yes. The lender can inform customers about the latest limit via an e-statement to their email account.
Yes. It would be best if the securities are present in the demat form.
Yes. Individuals can claim a loan against securities by converting their physical securities into demat form by opening a depository account with the lending firm or company.
Most Indian lenders review customers’ portfolios daily.
Besides the mandatory requirements, customers do not need to provide additional collateral for receiving a loan against securities.
Different lenders take a different amount of time to review applicants’ documents and approve the loan. Most outlets take around 10 to 14 days to process and approve a loan.
No. Banks or other financial institutions do not offer the full value of customers’ securities as the loan amount.