Life is unpredictable, and there could be emergency fund needs or financial assistance requirements at the most unexpected hour. At such hard times, you may consider selling off the shares you have purchased, but there is a better alternative to it – a loan against shares online.
In this blog, we will cover everything you need to know about the power of a loan against shares.
What is a Loan against shares?
A loan against shares is taken by pledging securities or shares as collateral. The loan value depends on the value of the securities securing the debt. There are multiple benefits of taking a loan against shares, such as quick access to cash, lower interest rates, and repayment flexibility. Another plus is your investments remain market-linked, giving you continual returns.
How does a loan against shares work?
A list of shares and bonds of around 50-100 top companies is accepted and released by all banks and financial institutions. When applying for a loan, borrowers have to pledge several shares from their portfolio where they can get a certain amount of a loan for a few months at a predetermined interest rate. Once the loan is repaid, this pledge is dissolved.
What are the 5 most important features of loan against shares?
There are multiple features of opting for a loan against shares or a loan against securities.
Here are the 5 most important features of a loan against shares:
1. Collateral
The most important feature of a loan against shares is provision of collateral in the form of shares. While taking this type of loan, you may choose to submit your approved assets, including equity shares and mutual funds, and other investments. Since the collateral secures the loan, getting it becomes easy and quick.
However, one must bear in mind that the amount of loan which could be sanctioned may always be lower than the total value of the shares or stocks being hypothecated as a collateral. The final disbursement will always be based on the number of shares and the price of the shares in the market at the time of the loan being applied.
2. Lower Interest Rates
Another important feature of digital loan against shares is that it has typically lower interest rates in comparison to other loan types. This is especially true when compared to unsecure loans or borrowings from financial institutions. The exact rate of interest could be different across lending institutions including banks and NBFCs. The actual rate of interest could be between 8% going upto 12% or more.
For borrowers looking to pick up a loan against shares from Abhi Loans, the interest rate may start from 8% per annum flat.
3. Quick Disbursal
Another feature of this loan is that it can be disbursed a lot quicker because the process of evaluating the shares and approving the same is relatively simple. Hence, this is a convenient option for borrowers who need funds quickly.
4. Flexible repayment options
The borrower can choose the preferred repayment option that suits their needs and financial situations. Many lenders, including Abhi Loans, give borrowers the facility to pay at will during the loan tenure. That means if you want to prepay your loans, you can without incurring any prepayment charges.
Flexible repayment options give a borrower the leverage of being able to pay more per month or repay the entire borrowing ahead of the tenure without having to worry about penalties or a list of hidden charges. It also helps borrowers get back the custody of their pledged shares ahead of time.
5. Tax Benefits
In some cases, a loan against shares can be used for tax benefits as well. For example, in India, the interest paid on a loan against shares is eligible for tax deductions under the Income Tax Act.
What is the loan against shares eligibility criteria?
To be eligible for a loan against shares, the borrower typically needs to meet certain criteria set by the lender. These may include:
- Being of legal age and having a valid government-issued ID
- Having a sufficient number and value of shares to serve as collateral for the loan
- Having a steady source of income
- Being a resident of the country where the loan is being applied for
Additionally, some lenders may also require additional documentation such as proof of income, bank statements, and tax returns to verify the borrower’s financial situation.
Conclusion
Since the rules for digital loan against mutual funds or shares can be subjective, depending on the lender and country, it is recommended to find an NBFC that offers lower interest rates, easy EMI options, no prepayment charges, the convenience of online application, and the loan amount that meets your fund requirements.
Talk to a financial advisor from Abhi Loans before taking a loan. Get in touch with an Abhi Loans expert today for the right guidance for a loan against shares.