Financial crises are a frequent occurrence in today’s high-stakes lifestyle. Often, there is no contingency plan in place to cover routine expenses during such periods. However, securities-backed loans are a rapidly increasing method of financing expenses under these situations. This is a helpful guide on borrowing money using securities as collateral.
What is a Loan Against Securities?
A loan against securities is a financial product that involves loans money via financial assets. It is a kind of secured loan. A secured loan is a kind of debt in which the borrower promises some asset as collateral, such as a vehicle, home, or any other valuable asset. Mutual funds, stocks, and life insurance plans are all examples of collateral that can be pledged as security for these types of loans. One of the primary benefits of such loans is that you pay interest only for the period you used the loaned money.
A loan against securities enables you to borrow funds by pledging the financial assets you have invested in as collateral against the loan amount to meet the unexpected crisis. The amount of loan depends on multiple factors, like the value of securities, lending requirements of the institution, credit or CIBIL score, and the ability of the borrower to repay the loan. A percentage of the value of securities is a loan, which ranges between 50%-90%, depending on the type of security.
However, not all shares, mutual funds, and insurance policies qualify for the loan. It is because lenders usually consider high-valued securities from reputable companies. Besides, most lenders define the types of financial assets pledged against the loan.
How to obtain loan against securities?
The following individuals and companies are eligible for these loans if they meet the requirements.
- Individuals: All Indian citizens of legal age and own assets that they may trade on their stock exchanges are eligible for these loans.
- Companies: Private and public limited businesses may invest in these loans as long as they are separate from their owners or stakeholders.
- Partnerships or Private Company: If such entities own a sufficient number of shares in India’s stock markets, they can loan against their securities.
Loan Against Securities – Formalities Required
The following is a list of papers that are required to apply for this kind of loan:
- A document that verifies the residence and identity of a person (passport or higher secondary mark sheet)
- RBI-mandated Know Your Customer (KYC) documentation
- ITR papers, as well as the most recent 2-3 years’ audited financial statements
- All promises’ security information
Having all of your loan papers in one place helps simplify the approval and payout process.
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Procedure:
Following the procedures mentioned below will allow you to get a loan by using your stocks as collateral.
- Step 1: Get in touch with your account manager.
It would help if you spoke with your relationship manager to learn more about the requirements and process before applying for this loan.
- Step 2: Submit the paperwork.
Once the paperwork meets the requirements, the process may go on. All information relevant to your loan requirements, as well as your personal information, must be provided.
- Step 3: Estimate the loan against securities interest rates.
The process of calculating the loan’s exact amount will take two hours. The lender will inform you as soon as an estimate is available.
- Step 4: Pledge your collateral to start the process
This step requires a pledge of your securities. Beginning with India Infoline Limited would be ideal.
- Step 5: Complete the loan paperwork.
An important step that says you have to submit all of your papers with India Infoline Limited is a mandatory requirement.
- Step 6: Obtaining Approval
You will have to wait for 24-hour before the appropriate authorities authorize the loan.
- Step 7: Acceptance of documentation
If all of your paperwork is in sequence, India Infoline Limited will accept your commitment and approve it.
- Step 8: Disbursement of loan
You’ll get the estimated loan amount right away. Either NBFC may use real-time Time Gross Settlement (RTGS) or Net Electronic Fund Transfer (NEFT) to accomplish this (NEFT).
- Step 9: Amount received
After that, you’ll have to wait for 48 hours for the money to be officially deposited into your account.
Conclusion
The most popular way to finance expenditures is to pledge assets as security. The availability of digital form has aided its development. Low-interest rates, quick money transfer, and flexibility are other reasons for its growing popularity.
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