Don't sell your assets;instead, seek a loan against securities

For investing purposes, many people keep their money in bank accounts and securities. In times of financial difficulty, there are just two options: borrow money or liquidate your investments.

It's always a concern when liquidating assets if you can rebuild them, especially if you've been keeping long-term investments, or if you can receive the greatest price at the time.

As a result, you can take advantage of the banks' Loan against Securities facility in an emergency. You can get the money you need without having to sell your assets if you use this service.

What is a loan against securities?

A loan against securities is a bank-provided service that allows you to borrow money in exchange for pledging your securities or deposits as collateral. The banks give a list of securities that can be used to raise funds as collateral.

Typically, a loan is authorized as a percentage of the value of the securities. Depending on the security type, it might range from 50% to 90% of the value of the securities pledged.

The following are the types of securities that banks commonly accept:

• Insurance policies
• Non-convertible debentures
• NABARD Bonds
• UTI Bonds
• Mutual fund units
• Demat shares
• National Savings Certificate or KVP, these are accepted in Demat form only
• Bank deposits

These are only a few of the securities available; there may be more, depending on the bank. The typical duration for these loans is one year, however, it can be extended based on the type of security and the needs of the borrower.

The interest rate for a loan against securities is usually between 9 percent and 15?percent.

What is the process of obtaining a loan against securities?

The amount of a loan approved when applying for a loan against securities is determined by the type of asset pledged.

A current account is opened in the applicant's name once the value has been calculated and approved. Processing fees for obtaining a loan often range from 0.1 percent to one percent.

The approved loan amount is granted as an overdraft, meaning you can take any amount you want from your account up to the set limit. The complete sanctioned amount will not be handed to you at once. Instead, you have the option of withdrawing only the amount you require right now.

Repayment is also simpler in this location. There is no EMI that is set in stone. You can repay the loan anytime you have the funds available by depositing them back into the account. As a result, you can utilize the funds and repay them on your own terms. There is also no prepayment penalty, unlike other loans.

It's a straightforward procedure that's more adaptable than other loans.

How is the interest calculated on a loan against securities?

The interest on a loan against securities is charged only on the amount withdrawn, not on the whole amount sanctioned. On a daily basis, interest is calculated on the outstanding balance.

The interest rate on a Loan against Securities is lower than that on a personal loan or a credit card, ranging from 9% to 15%.

What are the advantages of a loan against?securities?

• A high amount of loan: The loan amount for a loan against securities can be as much as ten crores.
• Interest rates are low: Loans against securities have lower interest rates than credit cards or personal loans. It varies from bank to bank, however, it normally falls between 9% and 15%. Bajaj Finserv, for example, offers a Loan against Securities products with the lowest interest rate of 9% and the biggest loan amount of up to 10 crores.
• Installments are low: When taking out a loan against securities, the client has the option of paying only the interest as an EMI and the principal amount can be paid at the end of the tenor or even sooner if the customer has adequate finances.

In addition, interest is computed only on the amount withdrawn, not on the whole amount of the approved loan.

• No liquidation of securities: The returns on investments are not harmed by a loan against securities. As a result, by using securities as collateral, you can effectively raise funds at no cost. Because there's a good probability that the income you earn on your stocks will cover the nominal interest you're paying on the loan.

Unrestricted cash withdrawal: The loan against Securities has no cash withdrawal restrictions. Up to the loan limit, one can withdraw as much money as they need. The entire loan amount can be withdrawn in cash. Credit cards, on the other hand, contain a cash withdrawal restriction that prevents you from withdrawing cash even in an emergency.