Managing money in difficult times might occasionally be too much to handle. For such situations, applying for a Loan Against Securities (LAS) is a wise decision. These secured loans liquidate your investments while helping you fulfil your urgent financial needs.

It is helpful because LAS allows you to access instant funds and quickly obtain money without having to sell your investments. Read this blog to learn about all things related to loans on securities, including their features, advantages, and things to consider before applying.

What is meant by a Loan Against Securities?   

A Loan Against Securities means pledging your shares as collateral to get the required funds instantly. With these types of loans, you can easily achieve cash without breaking your savings. 

Features of LAS 

• Secured Loan 

LAS is a secured loan which implies that you are keeping your investment securities as collateral to get the loan. It decreases the risk for lenders, making it a more favourable option resulting in reduced interest rates. 

• Loan-to-Value Ratio

Different lenders provide different LTV ratios. An LTV ratio helps to know the loan amount you are eligible for by taking into account the market value of your investments. 

• Tenure and Renewal 

LAS is offered through an overdraft facility, which is valid for one year and requires renewal thereafter.   

• Ownership Retention

When you use your securities as collateral for a loan, you still retain ownership of them. This allows you to keep receiving dividends, rewards, and other perks from your investments.   

• Overdraft Facility

Numerous financial institutions provide an option for overdrafts, allowing customers to access funds when necessary and pay interest only on the amount utilised.   

Advantages of Using LAS   

• Simple and Easy Loan Procedure  

Secured loans like LAS have an easy application process and faster approval compared to other loan types. It is because your securities serve as collateral that lowers the risk for lenders.   

• Affordable Interest Rates 

Interest rates for LAS are lower compared to those for other loans or Credit Cards, which makes it a cost-effective choice for borrowing money. However, the rate of interest depends on other factors such as the type of security pledged, the loan amount, borrower’s credit profile and repayment history.

• No Need to Liquidate Investments

You don’t need to liquidate your investments, allowing your assets to appreciate as you manage expenses.   

• Retain Investment Benefits 

After you pledge your securities as collateral, you still get to enjoy perks such as dividends and interest payments that keep your investments profitable for you.   

• Flexible Repayment Options  

With LAS, borrowers have the flexibility to pay only the interest on the due date, while the repayment of the outstanding principal can be made when they have surplus funds or at their convenience.   

•  Customisable Loan Amounts

The loan amount you can get is determined by the value of the securities you put up as collateral.  

• Minimal Paperwork

Given that your investments act as security for the loan, the paperwork needed is minimal, which speeds up and simplifies the process significantly.   

Things to Consider Before Applying for LAS

• Select the Lender Carefully 

Different lenders provide varying terms and conditions for LAS. Remember to compare various aspects such as interest rates, LTV ratio, processing fees, and repayment options across lenders. Leading banks like ICICI Bank also provide overdraft facility (OD) on this loan. That means you only pay interest on the loan amount used and for the period it is used. 

• Meet the Eligibility Criteria 

Remember to check the eligibility criteria and ensure you meet those criteria before submitting your loan application. Key criteria include:-

1. You must be minimum 18 years old to apply for the loan.  
2. Individuals, Hindu Undivided Families (HUFs), companies, partnerships, sole proprietors, trusts, and societies can apply for LAS based on the type of security.
3.  You will be required to provide documents for KYC, e.g. identification proof and address proofs, along with your Demat account details. 

• Evaluate Your Investment Value

Make sure to review the current market worth of your investments and the LTV ratio provided by the lender to gauge the loan sum you can acquire.

• Be Aware of charges  

Make sure you are aware of more than just interest rates when borrowing money. Lenders might also charge processing fees or maintenance costs along with prepayment penalties. It’s important to know all the costs upfront to avoid any expenses down the road.   

• Plan Repayment Carefully  

Although LAS provides flexible repayment choices to accommodate your circumstances effectively, failing to repay the loan could result in the forfeiture of your pledged assets. It’s crucial to devise a repayment strategy that aligns with your financial situation to safeguard your investments.   

• Monitor Market Conditions

The worth of your investments impacts the sum you can borrow for the loan. In case the market value declines, it’s possible that the lender could request more securities or repayment to make up for the deficit. Stay updated on market trends to be more informed in such scenarios.   

Conclusion 

Taking out a Loan Against Securities offers an easy method to access the worth of your investments without liquidating them upfront. It’s a flexible option that caters to financial requirements while enabling your investments to increase in value over time.   

When you select a lender, understand the loan terms and conditions well while planning out your repayment strategy efficiently for your use. Whether it’s for unexpected emergencies or anticipated expenses, you can secure funding without jeopardising your overall financial objectives.