The securities and share market in India is growing significantly. Investments not only add to an individual’s overall net worth but also help investors easily avail themselves of loans against it. A loan against securities is a secured loan that the borrower can avail of by pledging their marketable securities, such as stocks, mutual funds, bonds, or insurance policies, as collateral to obtain a loan.
The loan amount sanctioned under this financial option is calculated as a percentage of the market value of the securities pledged. Thus, pledging securities to avail of the loan allows the borrower to unlock the value of their investments without having to liquidate them, thereby retaining ownership and potential future gains.
Rising Popularity of Loans Against Securities
The demand for a loan against securities is increasing rapidly in today’s digital world, owing to the factors listed below:
- The convenience of online platforms offered by financial institutions has made the process of availing loans against securities more accessible and user-friendly.
- Increasing awareness among investors about the potential benefits of leveraging their investments to access liquidity has contributed to the growing demand for such loan products.
- As a secured loan type, lenders offer loans at competitive interest rates, thus driving up demand.
Eligibility Criteria for Loans Against Securities
The eligibility criteria for a loan against securities vary from one lender to another, but some of the general criteria include:
- The borrower must be an Indian citizen or resident of at least 18 years of age.
- The borrower must maintain a Demat account and hold eligible securities in sufficient quantities to serve as collateral for the loan.
- To easily avail the loan amount, the borrower should have a good credit score and demonstrate a positive repayment history.
- The borrower must have a stable source of income to exhibit their capacity for repayment.
- The value of the securities pledged must meet the minimum requirements set by the lender.
Securities That Can Be Pledged as Collateral
Below are some of the securities that a borrower can pledge to avail instant funds:
- Equities: These refer to stocks or shares of companies listed on the stock exchange. Equities are highly valued and liquid assets. However, their value can be subject to fluctuations, impacting the loan amount.
- Mutual Funds: These investment funds pool money from multiple investors to invest in various assets like stocks, bonds, or other securities. Mutual funds offer diversification and steady returns, but their value may fluctuate with market changes.
- Fixed-Income Securities: These investments, including bonds, debentures, and fixed deposits, offer a fixed interest rate. They are typically considered less risky than equities but may yield lower returns.
- Insurance Policies: Certain lenders accept insurance policies like endowment policies, money-back policies, or ULIPs as collateral for loans against securities.
These approved securities serve as a valuable form of security for lenders, enabling borrowers to access funds while leveraging their investment portfolios.
Benefits of a Loan Against Securities
- Quick Access to Funds
One of the primary advantages of a loan against securities is the speed at which borrowers can avail themselves of the funds. Since the loan is backed by collateral, the approval process is typically faster compared to traditional loans that require extensive documentation and credit checks.
- Retention of Asset Ownership
Unlike selling off investments to raise funds, opting for a loan against securities enables borrowers to retain ownership of their assets. It is beneficial for investors who wish to maintain the securities intact.
- Lower Interest Rates
Due to the reduced risk associated with secured loans, lenders often offer more competitive interest rates for loans against securities in comparison to unsecured loans. This can help in saving costs over the loan tenure.
- Flexible Repayment Options
A loan against securities typically offers flexible repayment terms, allowing borrowers to choose repayment schedules that align with their financial capabilities and goals. Additionally, partial prepayments or full repayment options are often available without incurring any prepayment penalties.
Considerations Before Applying for a Loan Against Securities
- In case of repayment default, the lender can sell the pledged asset to recover the outstanding amount.
- Despite the lower interest rates, interest expenses will still accumulate on the loan.
- Before applying for the loan amount, it’s essential for the borrower to meet the eligibility criteria, as not all securities and individuals qualify for the loan.
Apply for an Online Loan Against Securities!
As the financial lending world is evolving and innovating with digitilisation, applying for the loan amount has become extremely convenient and straightforward. A loan against securities offers borrowers the flexibility to meet their growing financial demands.
Tata Capital is a well-known NBFC that offers borrowers a convenient and efficient way to access funds while retaining ownership of their investments. Borrowers can leverage a wide range of securities as collateral to secure the funds they need. The quick approval, competitive interest rate, minimum documentation, flexible repayment, and transparent terms are what set Tata Capital’s loan against securities apart from others.
Download the online Tata Capital app and stay financially secure.