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Loan Against Security
What is a loan against security?
The most common loan against security is the loan against shares. In a loan against shares you borrow money from the bank and pledge your shares as a security against the money obtained. This type of a loan is called a secured loan.
These shares are merely pledged and not sold and the borrower continues to enjoy the shareholder benefits of these shares such as rights, bonuses and dividends.
What are the documents required to avail a loan against security?
- Your duly filled loan application form with passport size photograph.
- Your Residence and identity proof.
Why avail Loan Against Security?
You get a loan against 50% of the value of approved shares and 70% of the value of mutual funds.
You continue to enjoy all ownership benefits of shares and mutual funds such as bonus and dividends.
Interest charged only on loan amount utilized and not the entire loan.
You only pay the interest on the loan each month. Principal repaid at the end of the tenure. Overdraft facility available.
Eligibility criteria to avail Loan Against Security
You have to be within the age group of 18-65 years in order to avail a loan against shares. The tenure of these loans is generally a year but can be extended and taken up for renewal if required. You can avail a minimum loan amount of INR 1 lakh and a maximum loan amount of INR 10 Lakhs for physical shares and INR 20 Lakhs for demat shares. Banks do not lend against any shares pledged. Only those shares which are on the banks list can be pledged. Each bank has its own list and this is modified periodically.
The RBI allows banks to lend up to 50% of the value of physical shares and 75% of the value of demat shares. Shares held in the names of HUF, minors, Companies and NRI's cannot be pledged.