Loan Against Security: Eligibility, Tips, Credit Evaluation Procedures, & More
Considering taking a loan against your securities instead of liquidating your investments? It can be a smart move that allows you to access funds without bidding farewell to your carefully built portfolio. By opting for a Loan Against Securities (LAS), you can maintain the potential for long-term gains and dividends while meeting immediate financial needs. So, before you consider breaking your investments, explore the benefits of a loan against securities and learn the tips to qualify for availing loans against securities.
What is a Loan Against Securities?
When borrowers hold their investments, such as stocks, mutual funds, ETFs etc, as collateral to avail a loan. The benefit of a loan against securities is the ability to access the necessary funds swiftly and efficiently per your specific requirements without having to sell your investments.
When you’ve pledged your shares, you still continue to enjoy ownership benefits such as rights, dividends, bonuses, etc. In turn, you gain access to an overdraft facility based on the value of the pledged securities. This provides flexibility in using the LAS funds at your discretion. The loan against security interest rate is calculated only on the withdrawn amount for the loan duration, usually at a lower rate compared to a personal loan.
How Does Loan Against Securities Work?
A security loan works like flexible overdrafts. Imagine you pledge request shares for a Rs. 5 lakh loan. If you take out Rs. 10,000 and pay it back in 2 months, you only pay interest on the withdrawn amount. Loan terms vary, so approval depends on eligibility and required documents.
Tips that Qualify You for a Loan Against Securities (LAS)
Before you apply for a loan against these collaterals, it’s a good idea to check out the tips we’re about to share to make sure you meet the loan qualifications.
- State the Purpose of the Loan: You should clearly state why you require a loan. This enables the lender to assess your intention promptly. This facility is intended to address unforeseen financial requirements.
- Maintain a Good Credit Score: A good credit score is essential for qualifying for any type of loan, including a loan against shares or mutual funds. Lenders use your credit score to assess your risk as a borrower. A higher credit score indicates that you are a good credit risk and are more likely to repay your loan on time.
- Choosing a Reputable Lender: Several lenders offer LAS. When you look for a high-value lender, it is important to choose the one that offers the best value in terms of price and security.
You can now avail loan against mutual funds on smallcase! Investors with mutual fund investments can now get a loan against their mutual funds in under 5 minutes with the smallcase app.
- Have a Stable Income: Lenders want to see that you have a stable income sufficient to make your loan payments. If you are self-employed, you may need to provide additional documentation to prove your income.
- Audit the Pledged Shares and Securities: You should review the shares and securities pledged as collateral. Banks maintain a list of approved holdings; verify if your assets meet the eligibility criteria.
Eligibility for Availing LAS
Eligibility for a loan against securities depends on the preferred lender. Therefore, when you take out a loan against stocks and securities as collateral, meet the specified criteria to expedite your loan approval process.
For example, to secure a loan against mutual funds at smallcase, you must meet the following requirements:
- You can be self-employed or salaried without restrictions on your profession or business.
- You must be an Indian resident.
- You should be between 18 and 70 years old.
- You must have an active PAN Card linked to your bank account.
Interested candidates can read more about the Eligibility & Documents required for availing a loan against mutual funds on smallcase.
Credit Evaluation Procedures
Once you’ve submitted your application, the lender will conduct a comprehensive assessment of your application and documents to gauge your creditworthiness. This evaluation includes your profile and the financial stability of your collateral, with its current market performance playing a pivotal role.
Benefits of Availing Loan Against Securities
When considering financial options, a loan against securities emerges as a strategic choice with several advantages including:
- Uninterrupted Investment Growth: By opting for a loan on securities, you can access funds without the need to sell your investments. This ensures that your investment portfolio continues to grow, leveraging market opportunities.
- Cost Effective Financing: Loans against securities typically come with lower interest rates compared to unsecured loans. This cost-effectiveness makes it a financially prudent choice for those seeking capital while minimising borrowing expenses.
- Streamlined Process: Once you learn how to pledge shares or other securities, you can experience a hassle-free journey with a streamlined process. From quick approval to swift disbursement of funds, this lending option’s efficiency provides a convenient and timely financial solution.
Loan Against Mutual Funds on smallcase
Availing a Loan Against Securities like the loan against mutual funds via smallcase, not only meets immediate financial needs but also preserves your investment strategy, offering a balanced approach to wealth management. Here is how one can avail loan against mutual funds on smallcase:
- Log in to the smallcase app.
- Go to the ‘More’ tab and select ‘Loan Against Mutual Funds’.
- Import your mutual fund holdings that you want to put in an NSE pledge request against and choose which ones to use as collateral.
- Add a bank account to receive funds and set up a mandate for monthly interest auto-debit.
- Sign the loan agreement.
- The funds will be credited to your account within two hours.
To Wrap It Up…
Collateralising assets such as shares, mutual funds and securities significantly increases your approval prospects. These loans offer the added advantage of flexibility, allowing for multiple drawdowns and repayments throughout the loan tenure. This flexibility is a key factor driving lenders to readily approve loans against these trusted collateral types, resulting in a higher sanction rate for such loans. Candidates looking for a way to get funds without liquidating their investments can check out smallcase’s loan against mutual funds as a version of LAS.
Frequently Asked Questions About Loans Against Securities
Stocks, mutual funds, ETFs and bonds can be used as collateral when taking a loan against securities. By holding your investments as collateral, you can easily get funding for your immediate needs without liquidating your assets.
The age group eligible for availing Loan Against Securities (LAS) varies from lender to lender, but most lenders require borrowers to be between the ages of 18 and 65. An individual needs to be between the ages of 18 to 70 years to qualify for the smallcase loan against mutual funds.
Securing the loan against valuable assets enables financial institutions to offer borrowers lower interest rates than those associated with other personal loans or credit card debt. This enhances the cost-effectiveness of LAS or overdraft against shares for borrowers.
RBI guidelines cap loans against physical securities at Rs. 10 lakh and demat securities at Rs. 20 lakh per individual. RBI permits using Group I stocks as collateral for loans above five lakhs. Group I stocks are those that have been traded on at least 80% of days in the past six months and are within the top 1% of stocks with the lowest cost impact.
One can repay their loan through small monthly installments, covering only the interest, automatically deducted from their bank account. Additionally, one can pay a portion of the margin against shares or clear overdue installments on our customer portal. Investing in a Loan Against Mutual Funds (LAMF) with smallcase allows you to close your loan at any time without extra fees or penalties. To close your loan, visit the help section of your loan dashboard or contact the support team. Once requested, your pledged mutual funds will be returned, and your loan account will be promptly closed.
The full form of LAS is loan against securities. This can be a loan on shares, ETFs, mutual funds or any other assets.
All About Loan Against Securities & Loan Against Mutual Funds on smallcase –
smallcase offers quick and easy disbursement of loans against securities ( LAMF), all about eligibility, documents, features and benefits of Loan against mutual funds and the process for applying for loan is just one click away –
