A loan that is given to an individual against a security guarantee is called loan against securities. These may be loans against insurance plans, mutual funds, National Savings Certificates, and other securities. Such loans allow you to access funds when you need it, without selling shares or assets. Therefore, the road to the development of wealth and the achievement of financial goals remains uninterrupted.
The loan against security is in the form of an overdraft that applies to several securities pledged to the lender which includes:
- Listed share
- Mutual funds
- Life insurance policies
- Listed bonds
It lets you get prompt funding instead of selling out the securities in a rush. The financial aid depends on the guarantee you have promised, such as loan against mutual fund. Typically, a current account is opened in the creditor's name, and the interest rates get calculated on the sum you withdraw.
If you pledge a cover, you get steady cash when you need it, and it means you need not sell your shares and enjoy the bonus and dividends.
Features
- Their tenure is a year and easily renewable.
- The interest rates are competitive and fluctuate from bank to bank.
- Processing fees paid is 2 per cent of the loan amount.
- The loan sum depends on the security you offer.
- There is no charge for loan prepayment.
- You should be between 18-65 years old to apply for these.
- The loan must get repaid within the agreed period. When the borrower cannot make the payment, the lender files a recovery lawsuit, and the balance sum gets reimbursed within three years from the sanction date.
- The loan against security does not depend on your creditworthiness but the security provided. The said asset must be marketable and should not incur any risk. Liquid assets, such as raw materials, finished products, gold, silver, etc., are preferred.
- The value should be stable and steady and not massively fluctuating.
- The asset should be transferable;e. The immovable property does not get transferred immediately.
Things to bear in mind
- Check the eligibility: Before applying for a loan against security, ensure that you meet the eligibility criteria.
- Banks accept varied assets: Go for a lender that offers loan against mutual fund, IPO, insurance plans from partner companies, retail shares, etc.
- Offers high amount sanction on low interest: Take benefit of the bank's lending on securities giving a large amount on the collateral. In India, numerous lenders are offering high loan amount at competitive interest rates based on the securities.