A loan against bonds is a handy solution to your short-term financial needs. It can be a good move in times of urgent fund requirements. What makes it so are the advantages that it comes with. These are low-interest rates, quick disbursement, and paperless application, to list a few.
Selling your bonds may attract capital gain taxes and impede your long-term investment plans. Instead, if you take a loan against securities, you can arrange quick cash without liquidating your investments. Since the ownership remains intact, the borrower continues to earn dividends and profits as the market uptrends.
Not just that, but a digital loan against shares or bonds allows borrowers to pay at will, meaning they can pre-pay or part-pay the loan before the loan tenure ends without incurring any pre-closure charges. It is worth noting that only a few lenders levy no prepayment charges. Before discussing why a loan against bonds could be your best move, it is imperative to understand what it is.
What is a loan against bonds?
A loan against bonds is a type of loan you can avail of by pledging your bonds as collateral. The loan is available to anyone who holds bonds and is 18 or above. The loan amount one can unlock depends on the value of the pledged securities. The higher the value, the higher the credit limit you can get.
It is a type of secured loan that requires you to submit collateral. You can use it for different purposes, such as funding your child’s education, home renovation, medical emergencies, and debt consolidation. Since collateral reduces the lender’s risk, the interest rate (IR) is considerably low. With that being the case, there could be no better move to fund your cash needs than a digital loan against stocks, a loan against securities, or an instant loan against securities. Let us now explore what makes borrowing against bonds your best move.
What makes it your best move when requiring urgent cash?
Quick access to cash
A loan against shares, bonds, mutual funds, or other marketable securities is a convenient way to access quick capital. With lenders like Abhi Loans, disbursal is possible in a few hours. In such a case, you apply in the morning and get the loan amount in your account by noon. Today, most lending institutions accept digital applications relieving borrowers from physically visiting the bank or NBFC. It saves them a lot of time and effort. So, if you choose to borrow against shares, bonds, and other listed securities, you get the loan amount on the same day you need it without waiting too long for application, approval, and disbursal.
A less costly alternative to unsecured loans
A secured loan costs less than an unsecured loan, and the interest rate is the difference. Since the collateral minimizes the lender’s risk, the former comes at lower interest rates than the latter. Other charges, such as processing fees, are also nominal at a loan against bonds. When you take a digital loan against stocks or a loan against shares, the processing fee could range from 0.5% to 2%, varying from one financial institution to another.
Keeps the ownership intact
Another advantage of taking a loan against equity shares, bonds, or securities is that it allows you to stick to your investment plans. That means your investments keep benefiting you even if you pledge them to borrow money. When you sell your bonds to get funds, you may have to adjust your investment portfolio, and there is a possibility of missing out on future gains. What adds to your trouble in such a case is that the proceeds gained from sales may attract capital gain taxes, which can be between 10% and 15%. Instead, if you take an instant loan against securities like bonds or equity shares, you keep the bond holdings and continue to earn benefits.
Credit history is no barrier
Some lenders do not check your credit score while sanctioning the loan. So, if you have a poor credit history, you need not worry. All you need to apply for the loan is proof of your investment portfolio and KYC documents. The hassle-free application process makes it a practical solution for those requiring urgent funds.
The benefits above make an instant loan against stocks, bonds, and mutual funds a wise choice over other loan options. But then, it is crucial to mind the risks involved in this loan. If you default on your EMIs, you may incur extra charges or penalties and even lose your holdings, as the lender reserves the right to sell your bonds in case of default to recover the due loan amount. To conclude, a loan against shares, bonds, and other securities is a good move for everyone who holds bonds and needs urgent cash.