Know About Loan against Securities

Loan Against Securities

Loan against securities are those loan advances that are offered in return to the securities like insurance policies, mutual funds or shares. Any lending organization gives you a loan if you pledge any of your securities against the loan amount taken.

How do these kinds of loans work?

The lending institution provides you an overdraft facility on your account after you deposit your securities to the bank. You can use as per the requirement and the interest will be charged accordingly on the amount utilized. If you are offered a loan of 1 lakh against your securities but you only use it to an amount of 50,000, you will only have to pay interest on 50,000 for the duration used. The loan amount offered to you depends on the value of collaterals your deposit.

Are these loans easy?

Getting these loans is comparatively easy than unsecured loans since the borrower deposits collateral. In this case, the lending authorities feel safe to offer money as in case of default, they can use the borrower’s securities to retrieve the loan amount.

Features and benefits of loan against securities :

  • With securities and collaterals, the loan values offered are higher than usual.
  • Documentation requirement reduces since the security is deposited that fulfills most of the requirements.
  • With everything around going digital, you get online access to your loan amount that gives you all the updates.
  • The process is quick and easy.
  • With secured loans, the chances of default reduce since there are securities at stake and nobody wants to lose any such asset.
  • Repayment plans are more concrete and well adhered to since default in secured loans may cause huge losses.
  • Rates of interest are lower as compared to other loans because the collateral deposited is the easiest of retrieving the loan amount in case of default.

Documents required for Loan against Securities

A borrower who is salaried must submit the following documents:

  • PAN card
  • Identity and address proof
  • Photograph
  • Last 6 months bank statement
  • Canceled cheque
  • Demat account statement
  • Income proof

A borrower who is self- employed must submit the following documents:

  • PAN card
  • Identity and address proof
  • Photograph
  • Last 6 months bank statement
  • Canceled cheque
  • Demat account statement
  • Income proof
  • Balance sheet and profit and loss account
  • Office address proof and the existence of business proof

Loan against security may sound critical and burdened due to collateral deposits but on the other hand, is quite helpful in terms of immediate requirement of finances since approvals and disbursals are fast in case of secured loans with lower interest rates.

However, loans are and will always be a burden if not treated consciously and gently. It a respite in case of emergency but taking it a solution in every financial problem may land you in heavy debt. Use the facility consciously to not make it a habit and unwanted liability that gets too clingy and problematic in the long term.

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