Taking up a personal loan always has been a tiresome experience. We often ponder upon its pros and cons and have to go through piles of papers without making our selection and opting for it. We often consult our friends, family and office colleagues for the same. But we might not always get the correct and proper advice in these modern times.
Taking up a personal loan has become a sort of a norm, as consumers are unaware of the other viable alternatives such as loan against shares or securities, where you can utilise your available securities in the portfolio such as shares, mutual fund units, and other securities and mortgage them for instant access to funds. Almost all of the private banks and PSUs offer such loans to the consumers, with interstate varying between 12% to 15%
Before you opt for a loan, it is imperative that you reason out properly as to why you are taking up a loan, the cost of the loan or the mode of loan.
Loan against securities has its own advantages, as they are not only hassle-free but also offer immediate liquidity. You can easily avail loans against shares, provided you have good securities in your portfolio.
The Major advantage it follows is
- There are no prepayment charges.
- In most cases, an overdraft facility is also available with it
- In the case of personal loans, the interest is charged on the entire amount and is payable after the loan is disbursed, but in the case of loans against shares, interest is charged only on the amount utilized out of the sanctioned limit and for the time it is utilized.
- Since these loans are secured loans, they involve minimal paperwork and are simple and easy to obtain
- They also enjoy a lower interest rate as compared to that of a personal loan.
Almost all of the major banks have a list of approved securities against which they lend. The customers can put equity shares, mutual fund units, government bonds, LIC policies, NSC, KVP, UTI Bonds or gold deposits as collateral for their loans.
According to RBI guidelines, a borrower has a limit of Rs 20 Lakh against the shares and mutual fund units. The only downside is that the client or the borrower will have to fund the account or pledge more securities in case the markets fall and the already pledged securities lose their market value.
Thus it is advised that you borrow only to the extent of your repayment ability. If the pledged securities experience an upward movement in their market price, the bank or the lender could grant you a limit enhancement subject to terms and conditions.
How will loan against securities/shares help you get an edge?
A loan against shares is a strong, viable option regarding short-term liquidity. One should always be cautious about the amount utilized; otherwise, you might get into a debt trap if you encounter any loss.
However, here are a couple of reasons why taking a loan against shares is a smart way to cover your short-term liquidity needs which might arise due to exigent circumstances or otherwise
- Restriction-free end usage.
Loan against shares does not carry any restriction on the end usage of the funds other than that for speculative purposes. The amount can be used for various purposes, which could include Children’s education, purchasing a car or for meeting any short-term cash flow requirements or financial requirements. This makes it a good alternative to credit cards and personal loans.
- Overdraft Facility
A loan against security is often offered as an overdraft with a sanctioned limit depending upon the pledged securities. Borrow can draw from the sanctioned limit, entirely or a portion of it and repay it as number of times as required. The interest is only charged on the amount that is drawn until the repayment.
- Flexible repayment with no prepayment Charge
The principal component of loan can be repaid till the tenure based on the borrower’s cash flow, without incurring any prepayment charges, ergo reducing the EMI Burden and without prepayment charges, it provides unparalleled flexibility when it comes to any form of loan
- Credit Score
Credit Score stands as one of the primary filters for lenders and a primary hurdle for customers with low or no credit scores. However, when it comes to Loan against shares, creditworthiness does not play such a critical role as the securities pledged to carry a low Loan-to-value score or ratio. This allows the lenders to adopt a more flexible approach while evaluating the customer’s loan application.
Loan against shares gives you a viable alternative to personal loans and other instruments to help you in your short-term financing needs without having to put things dear to you as collateral and thus help you get an edge by simply swapping your shares in your Demat account by allowing shares to be mortgaged for instant access to funds. Rurash offers quick and secure Financing ranging from Rs 5 lacs to Rs 100 crores. To finalize the application, process the loan, and disburse funds, one of our loan officers will support you at every step.
RURASH is one of India’s investment management firms, providing financial solutions to augment the client’s wealth and facilitate building a legacy.