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HomeTrending newsKnow How Loan Against Securities Makes Sense During Rising Stock Markets

Know How Loan Against Securities Makes Sense During Rising Stock Markets

When it comes to managing personal finances, it is wise to dedicate a portion of your income towards an investment pool. Depending on your risk appetite, you can either invest in avenues with assured gains such as fixed deposits, PPFs, and post office savings schemes or fluctuating instruments like equity, mutual funds, stocks, and bonds. 

These tools equip you with sufficient resources by establishing a mechanism to multiply your wealth. Even so, at any given point, you may find yourself facing a financial emergency and need immediate funds to overcome it. 

In such a case, it is risky to break into your investments and hamper your entire life savings. Instead, you can opt for a loan against securities to fulfil any short-term monetary commitment.

loan against securities, as the name suggests, allows borrowers to receive financial aid from Non-Banking Finance Companies after pledging their securities as collateral. These securities include equity, shares, mutual funds, bonds, IPOs, or life insurance policies. 

The most prominent advantage of choosing this credit option is that even after pledging any securities as collateral, the investors continue to receive income such as credit of interest, dividends, bonuses, etc. Thus, by availing of this loan facility, you can meet your temporary obligations while keeping your savings intact. 

Apart from affordable loans against securities rates, numerous features make this loan type an ideal means of financial assistance. 

Unrestricted Use Of Funds

Niche loan types like home loans and car loans are high-profile debts that can be utilized only for the purposes specified in the loan agreement.

However, a loan against securities comes with zero restriction on the end-use of funds.

After pledging your securities as collateral, you can utilize the procured funds for anything from sponsoring your child’s education to meeting wedding expenses to paying for a medical emergency. 

Instant Disbursal Of Money

Pecuniary emergencies can leave you with crippling finances if you don’t have a sound economic plan. Accessing your investment reservoir to carry out these commitments might not be feasible on such short notice.

On the other hand, lending institutions approve the application for a loan against securities in less than 24 hours and initiate swift disbursal of funds in the next 48 hours.

Pledge From An Extensive Range Of Securities

Non-Banking Finance Companies allow borrowers to pledge securities, including mutual funds, shares, bonds, and insurance. Thus, it gives you the freedom and flexibility to choose which investment asset of yours should be the collateral. The LTV (Loan-to-Value) ratio varies as per the asset class.

For example, as per RBI regulations, financial institutes can grant loans against securities up to 60% of the market value of equity mutual funds pledged as collateral. However, the disbursal cap for equities as collateral is 75% of its value.

Flexible Repayment Norms

Since loans against securities are high-profile loans availed by pledging lucrative assets, their repayment terms offer much flexibility. NBFCs allow foreclosure or partial prepayment of loans against securities and charge no fees. On account of this, borrowers can direct any surplus income towards clearing off the debt in advance.

In addition to this, loanees can also choose a loan tenure of up to 3 years, obtaining plenty of time to repay the principal amount. 

Limited Dependency On Credit Score

Most lenders calculate the CIBIL score before granting loans like unsecured personal loans, home loans, etc. A credit score is the numerical representation of a borrower’s creditworthiness, computed based on credit history.

The most promising aspect of loans against securities is that financial establishments don’t consider credit scores before approving an application. Due to the pledging of high-value securities and lower LTVs, NBFCs have a milder approach toward credit scores. 

Conclusion

Indeed, one cannot avoid financial emergencies. However, opting for a mechanism that safeguards your earnings while at the same time compensates for the current shortage of funds is crucial. 

Apart from comparing the loan against securities rates, you must also understand which securities to include in the loan agreement. By considering the factors mentioned above, rest assured you can procure immediate funds in a trouble-free manner. 

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