Everything You Need To Know About Loan Against Securities

Posted by Arjit Chalmela on January 4th, 2021

A loan against security is a loan given to an individual against a security guarantee. These may be loans against insurance plans, mutual funds, National Savings Certificates, and other securities. A loan against allows you to access funds when you need them without selling shares or assets. Therefore, the road to the development of wealth and the achievement of financial goals remains uninterrupted.

Loan against securities is in the form of an overdraft that applies to several securities pledged to the lender/bank that may be:

• Listed share
• Mutual funds
• Life insurance policies
• Listed bonds

A loan against mutual fund lets you get prompt funding instead of selling out the securities in a rush. The financial aid cap depends on the guarantee you have promised. Typically, a current account gets opened in the creditor's name, and the interest rate gets calculated on the sum you have withdrawn over the period.

If you pledge a cover, you quickly get steady cash when you need it, and that also means you do not have to sell your shares and still enjoy the bonus and dividends.

Features of Loan against Securities

• The loan's tenure is one year, which can easily be renewed.
• The interest rate varies between banks.
• Processing fees are paid at 2 percent of the amount of the loan.
• The loan amount depends on the security.
• There is no charge for loan prepayment.
• The borrower must be 18-65 years old to apply for a secured loan.
• The loan must get repaid within the period. When the borrower cannot meet the payment, the lender can file a recovery lawsuit, and the balance sum must be reimbursed within three years from the loan's sanction date.

Things to bear in mind before availing of loan against securities

• Check the eligibility criteria: Before applying for a bank loan against security, you must ensure that you meet the eligibility criteria. To be eligible for a loan against securities, most lenders require the borrower to be 21 years old.
  
  
• Select a bank that accepts varied investments: You should go for a lender that takes different types of assets such as mutual fund, IPO, insurance plans from partner companies, retail shares, etc.
  
  
• Select a bank that offers a high amount on low interest: You must take advantage of a bank's lending on securities giving a large loan on the collateral. In India, numerous lenders offer a high amount of loans at competitive interest rates depending on the securities.