Multiple banks. Different interest rates. Call it a "conflict of interest".

    Loan Against Securities

    The primary function of a financial constitution is to lend money. The money is lent in different forms and is mostly for a certain period. Deposits that a customer makes to the financial institute is repayable on demand and hence the bank or the financial institute can’t keep the funds locked up for a longer term. This is the reason why loans are usually granted against collateral security and only sometimes against personal security of the borrower.

    Loan against security is a loan advance to a customer against a pledge of security. It can be loan against insurance policy, mutual funds, National Savings Certificate and other securities. Loan against security can be given against the following securities:

    • 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.

    Loan against property helps you to avail timely finance instead of selling off the securities in a haste. The limit of the financial assistance depends on the security that you have pledged. Usually a current account is opened in the borrower’s name and the rate of interest is calculated on the amount that is withdrawn by you during the period of utilisation.

    When you pledge a security, you get steady cash easily at the time you need it the most and this also means that you won’t have to sell your shares and not benefit from the bonus and dividends.

    Features of Loan against Securities

    Following are the salient features of loan against security:

    • Loan against security is a Secured Loan. Debentures, shares, bonds or mutual funds are offered as collateral.
    • The tenure of the loan against security is one year, but it can be easily renewed.
    • The rate of interest ranges from 12 – 15%. The rate varies from bank to bank.
    • The processing fee is charged at 2% of the loan amount.
    • The loan amount depends on the security the borrower is offering.
    • The no charges for prepayment of the loan.
    • The borrower must be with the ages of 18 – 65 years to apply for a loan against security.
    • The loan has to be repaid within the fixed period. If the borrower fails to make the payment, the lender can file a case for recovery and the balance amount has to be repaid within 3 years from the date of sanction of the loan.

    Features of a good security is

    • The loan is not dependent on the creditworthiness of the borrower but is dependent on the security that he has submitted. The security offered is marketable and doesn’t incur loss. Preference is given to liquid assets like raw materials, manufactured goods, gold, silver, etc.
    • The value of the security should be stable and steady and not fluctuate widely.
    • The security must be easily transferable. Immovable property is not easily transferable.
    • The security must be easily marketable.
    • The security must be free from disabilities.

    Documents required for Loan against Securities

    Borrower who is salaried must submit the following documents:

    • PAN card
    • Identity and address proof
    • Photograph
    • Last 6 months bank statement
    • Cancelled cheque
    • Demat account statement
    • Income proof

    Borrower who is self- employed must submit the following documents:

    • PAN card
    • Identity and address proof
    • Photograph
    • Last 6 months bank statement
    • Cancelled cheque
    • Demat account statement
    • Income proof
    • Balance sheet and profit and loss account
    • Office address proof and existence of business proof

    Banks offering Loan against Security

    Following are the leading banks in India that offer loan against security:

    • ICICI Bank
    • HDFC Bank
    • Axis Bank
    • ING Vysya Bank
    • Standard Chartered Bank of India
    • IDBI Bank

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