Loan Against Security
A loan against securities is a sort of personal loan in which you pledge your life insurance policies, stocks, bonds, fixed maturity plans, and mutual funds to the lender as security/collateral against the loan amount. Loans against securities are similar to overdrafts in that you can take money out of your bank account and just pay interest on the amount you use. It assists you in raising dollars to meet your immediate cash needs. Read on to learn about its features, interest rates, eligibility, required paperwork, and more.
Features of loan against security (LAS)
Given below are some of the features of a loan against security:
- Interest rate: 7.75% p.a. onwards
- Loan amount from Rs. 25,000 and up to Rs. 20 lakh, may exceed
- No-end use restriction
- Secured personal loan – Security/Collateral is required by the bank
- Acts almost the same as an Overdraft facility
- The interest rate paid only on the utilized amount
- Repayment Tenure: Up to 3,6,9,12 months – Shall vary as per the lender
- Loan against pledged investments in form of policies, shares, bonds, etc.
- High loan to value: Loan up to 85% of the asset value of your securities
Features of a good security
Good security has the following characteristics:
- The loan is not based on the borrower’s creditworthiness, but rather on the security that he/she has submitted. The given security is marketable and does not result in a loss. Liquid assets such as raw materials, manufactured goods, gold, silver, and other precious metals are prioritized.
- The security’s value should be consistent and not vary significantly. It must be simple to transfer security. Immovable property is difficult to transfer.
- The security must be simple to sell.
- There must be no barriers to security.
Interest rates for LAS in India
Given below the interest rates offered by leading financial institutions:
- SBI: 9.25%-11.90%
- IDBI Bank: 75% – 8.75% p.a.
- Axis Bank: 00% p.a.
- Kotak Mahindra Bank:25% – 13% p.a.
- HDFC Bank: 90% p.a.
- Bajaj Finserv:00% p.a.
- Tata Capital: 50% p.a.
- Federal Bank: 12.50% p.a
Eligibility Criteria for Loan Against Security
- Applicants must be Indian residents
- Age: Minimum 18 years and maximum 70 years
- Salaried or self-employed individuals are eligible
- Must have approved securities to pledge
- No previous default with any financial institution
- No past criminal background
A comprehensive list of approved securities from selected Banks/NBFCs
- Life Insurance Policies
- Mutual Funds
- Demat Shares
- Equity Shares
- Fixed Maturity Plans (FMPs)
- Employee Stock Ownership Plan (ESOP)
- Initial Public Offerings (IPOs)
- Exchange-Traded Funds (ETF)
- Gold Deposit Certificates (GDC)
- National Savings Certificates (NSC)
- Kisan Vikas Patra (KVP)
- Non-Convertible Debentures (NCD)
- NABARD’s Bhavishya Nirman Bonds and much more
Documents needed to apply for a Loan against Securities
- Duly filled application form and loan agreement
- Passport-sized photographs
- Applicant’s KYC documents: Identity proof, Age proof, and Address proof
- Demat Account Statement or Statement of Holdings (MF)
- Pledge form or request letter for pledging of securities
- Guarantor Form – Optional (Mandatory for Joint holding)