How to Get Loan Using Securities / Shares as Collateral?
If you invest in the stock market and fall into some financial emergency, you may leverage your investments to raise quick funds by taking a loan against shares. In this case, you won’t need to sell your shares and bear the undesirable loss. And if you are on the dark side of what a loan against shares or securities is, how you can avail of it, where to get it from, and how to repay it, this handy guide will educate you about all this and more.
Loan against securities or shares at a glance
A loan against securities or a loan against shares is a type of loan you can take by pledging your shares as collateral to the bank against the funds you want to raise. It can help you fulfil your requirements for emergency funds. Unlike other loan types, you do not need to provide the lender the proof of your income while applying for the loan against securities. All you need to submit as collateral is the shares in our Demat account and KYC documents.
When you choose to take such a loan, your investment remains yours, and you get funds against it.
How to get a loan against security?
Loan against securities is super easy to avail of. The best part is you do not necessarily need to head only to the broker who has your Demat account to take the loan against mutual funds and share. You can go to any bank, NBFC, or financial institution to get the loan against the shares in your Demat account. And if you choose to pledge your shares to Abhiloans, you will get the following benefits:
- Low EMI starting from Rs 1166 per month for Rs 1,00,000
- Get quick approval on loan against securities, disbursed within 4 hour
- No pre-payment charges
- Flexible amounts starting from Rs 15000 to 1,00,00,0000
Abhiloans stand to cater to your urgent needs for loans against mutual funds, loans against shares, or loans against other financial securities. With Abhiloans, you get instant loans with a four-step, paperless process. It is as easy as follows:
- Step 1: Login at abhiloans.com with your Aadhar-enabled mobile number
- Step 2: Upload your KYC documents to start the lending process
- Step 3: Mark lien on the mutual funds or shares starting at Rs 15000
- Step 4: Relax & wait. Your loan amount will be disbursed into your account within 4 hours
About loan repayment
When talking about loan repayment, you generally get two options:
- Option 1: Overdraft facility
The overdraft facility entails paying interest monthly. Under this facility, you can pay the principal amount anytime during the loan tenure. Remember that the loan tenure is not always necessarily fixed. It may extend based on renewal, meaning that the duration of the loan may increases as you renew it or take further loans on shares. In this case, you are liable to pay interest only. But if you default to pay the principal amount, irrespective of the reason, the lender can sell your share to recover the loan.
- Option 2: Demand loan
The second option is a demand loan, which gives you tenure of up to 36 months. In this facility, you have to pay a fixed monthly EMI. If you choose the overdraft facility, you must repay the principal together after your tenure is over, which may fall heavy on your pocket. In the other case (EMI), which includes the principal and interest, you pay the principal in easy monthly instalments, but the total amount paid is higher than the overdraft option.
Annual review/renewal
If you have chosen the overdraft facility, the loan will be reviewed or renewed every year, as the stock value is volatile. That means the stock may rise or drop in value depending on the market condition. At the time of review or renewal, the amount of the loan against security can be either increased or decreased based on the current value of the shares you pledged as collateral. The annual review may also involve charges, usually between Rs 1000 and 5000, varying from lender to lender.
Pre-payment charges
With most institutions, including Abhiloans, pre-payment charges are Nil. Suppose you get a loan of INR 2 lakhs for one year. You manage to arrange Rs 1 lakh from some other sources during your loan tenure and want to prepay it to reduce your principal. In such as case, you do not need to pay extra charges, which used to be 2-3% earlier, varying from lender to lender.
Eligibility and documents required
When talking about eligibility, the borrower must be 18 years or above. The documents you may need include:
- PAN Card
- Address Proof: Aadhaar/Driving License/Passport/Voters Id)
- Applicant’s Photo & Signature
- Bank Proof (Name printed cheque leaf/Bank statement)
Collaterals included
Borrowers can get 50-75% of the value of their security against a range of collaterals, including shares, mutual funds, life insurance policies, bonds, and other financial securities.So, before you apply for a loan against shares or securities, the factors above will help you make an informed decision.