DhanLAP

Loan Against Securities

The New Way To Borrow Money

Photo by Allef Vinicius
Photo by Visual Stories || Micheile

1. Know the purpose

It is important to have clarity about the purpose for which you wish to avail of a Loan Against Securities. This will help you assess whether the requirement is really worth funding for with a loan that carries 10%-12% interest or can it be postponed until you have sufficiently saved up for it. To avail of a Loan Against Securities because a bank or Non-Banking Financial Company (NBFC) makes a tempting offer would be imprudent.

2. Avoid risking the loan amount

Just because the Indian equity market is at a high, and expected to scale up further supported by favorable undercurrents; do not make the mistake of availing a Loan Against Securities to reinvest it in the equity market. This practice is considered highly risky as there is a chance that the equity market may not move in the same direction and pace as you had expected. You could incur losses if the market corrects. Besides, it does not make sense to invest the loan amount into a start-up, unlisted equities, or for a business expansion where the risk is very high.

3. Short-term requirement

The Loan Against Securities is one of the best options available for a short duration of several months, especially when you borrow against shares and equity-based mutual funds. The lenders do the periodic assessment of your investments, and if the value of your pledged investment reduces more than the due amount, the difference or margin needs to be repaid within 2–3 working days after the lender notifies you. Thus, when the markets are expected to correct or in the middle of a bear phase, avoid availing of a fresh Loan Against Securities.

4. Financial discipline

Since the lender holds the right to liquidate your asset to recover the dues, you risk losing your pledged asset/s when you do not make the timely repayments and/or default the loan. Moreover, it will reduce your credit score.

5. Do your research

While a number of banks and NBFCs are offering Loan Against Securities, carry out thorough research to make the best choice when availing a Loan Against Securities. The product features and offerings differ from lender to lender. Some lenders may charge a lower interest rate, while others might offer a discount in processing fees or flexible loan repayment.

6. Analyze your portfolio

Most banks and NBFCs offer Loan Against Securities only on pre-approved shares and mutual fund schemes, and whole life insurance policies. This ensures that the lender stays safe during the market dips. So, do not assume that you will receive the funds against all your investments.

7. Ensure you are eligible

As Loan Against Securities is a secured loan, there are no stringent eligibility criteria for the borrower. That said, the basic requirements vary from lender to lender. The general conditions are:

  • You are between the age of 21 years to 65 years
  • You have a regular and proven source of income
  • You hold worthy financial instruments accepted by the lender for a Loan Against Securities

8. Approval/Rejection of the application

Once you have submitted the required documents, the lender verifies your application and documents. They also perform a soft credit check to assess your creditworthiness. In addition, the securities you wish to pledge are also assessed, and the valuation is done. Finally, if you meet all the requirements, the lender approves your loan application. It does not take a long time for the lender to decide on approval/rejection after you apply for a Loan Against Securities.

To conclude

A Loan Against Securities can be the best choice if you take care of the points mentioned above. It is advisable to avail of a Loan Against Securities when you are in urgent need of money for a short duration and have the capacity to repay it on time.

  1. Sign-up by verifying your mobile number and email address.
  2. Share your personal details, such as name, age, address, contact details, details of identity and address proofs, etc.
  3. Read the list of securities accepted as collateral.
  4. Select the securities which you wish to pledge.
  5. Read all the Terms and Conditions and pledge the securities digitally.
  6. You will receive a ready-to-use loan amount.

Dhanlap launched by Ark Neo Finance is a digital LPaaS (Loan Platform as a Service) that caters to retail investors.