Are you thinking of selling your shares or any valuable asset to get cash for urgent requirements? If yes, then worry not. Now, you will not have to sell your assets to arrange any finance. Wondering about a possible solution? A loan against securities comes to your rescue. This financing option helps you instantly raise money against your assets without even selling them.
What is a Loan Against Securities?
Loan against securities is a financing option where you can use your portfolio of financial assets, including stocks, bonds, mutual funds, and other securities, as collateral to secure a loan from a financial institution. This financing option is beneficial for both borrowers as well as the lenders.
For borrowers, it provides quick access to funds without needing to sell off their investments. Whereas, lenders benefit from having tangible assets as security, mitigating the risk associated with the loan. This decreased risk for the lender often translates into more favourable terms for the borrower, making it a mutually beneficial arrangement for both parties involved.
How Does a Loan Against Securities Work?
Loans against securities function as a form of overdraft arrangement tied to your account, contingent upon the securities you deposit. When you apply for the loan amount, you will have to deposit a security against it. Based on that, you gain access to a line of credit from which you can withdraw funds as needed. Interest accrues solely on the amount borrowed and for the duration it is used. The loan amount that you can apply for depends on the value of the security that you pledge as collateral.
For instance, if you are granted a loan against the securities of ₹1 lakh and you withdraw ₹50,000 while returning the sum within one month. Then, you will only be liable for the interest accrued on that ₹50,000 for the duration of one month.
Benefits of Applying for a Loan Against Securities
-
Low Interest Rates
One of the main reasons behind the increasing demand for loan against securities is that now you can easily get the loan amount at a comparatively lower interest rate. Since the loan is backed by collateral, the lenders charge competitive interest rates. The exact interest rate ranges from lender to lender, but this loan is beneficial for the borrower.
-
Instant Access to Funds
With this financing option, you get the advantage of quick and hassle-free access to the funds. Unlike conventional loans with their cumbersome approval procedures, you can sidestep lengthy waits, rendering them an appealing option during financial emergencies.
-
No Impact on the Investment Portfolio
When you apply for a loan against securities, you will not have to sell any of your investments. They remain intact, and you continue to benefit from the potential market gains and collateral while using the same investment as collateral against the loan.
-
Flexible Loan Amount
The amount you can obtain through a loan against securities is determined by the value of the securities you offer as collateral. As the value of your securities appreciates, so does your ability to borrow. This means that your borrowing capacity can grow with the increasing value of your securities.
-
Versatility
Unlike certain specialised loans that dictate the purpose of the funds, a loan against securities empowers you with the freedom to allocate the borrowed amount according to your priorities and financial objectives. Whether you plan to make a big purchase, consolidate existing debts, or address any other financial requirement, you can use the loan amount with minimal restrictions.
Important Consideration for a Loan Against Securities
While applying for a loan against securities offers you numerous benefits, here are some of the key factors that you must consider before making a final decision:
-
Risk to Securities
While pledging collateral in return for the funds, you must ensure that you can repay the loan amount. Failure to repay the loan can lead to the loss of your assets. In the event of a payment default, the lender has full authority to sell your security and recover money from it. Thus, you must ensure that you understand the potential risk associated with it and have a fool-proof repayment plan in place.
-
Interest Rate Fluctuations
There are basically two types of interest rates, i.e., fixed interest rates and variable interest rates. Be clear on the type of interest you are agreeing to and how it can impact your loan amount.
-
Eligibility and Documentation
Each lender has different eligibility criteria and documentation requirements. Before you apply for the loan amount, ensure that you meet the eligibility criteria and have all the documents ready in one place. Failing to meet any of these can lead to the rejection of your loan application and impact your credit score.
Borrow Smartly From a Reliable Loan App!
A loan against securities can undoubtedly help you meet your financial requirements with a comparatively low interest rate. By leveraging your existing securities, you can avail yourself of the required amount instantly. However, it is essential to apply for the loan amount from a reliable lender. Tata Capital is one of the best NBFCs that can help you avail of the required loan amount at the best interest rate. Their transparent and customer-centric approach ensures a seamless borrowing experience.
Thus, by choosing the Tata Capital loan app for a loan against securities, you can meet financial requirements while safeguarding your investments for the future.