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All the Pros and Cons You Need to Know of Taking Loan Against Stocks

Business Finance Guide 09-12-2022 | 5 min read

You can always get a loan against stocks, but there are some things you should know before signing up. You can get loans to pay for things you need and things you want. Today, banks and non-bank financial companies (NBFCs) lend money to help people buy almost anything, from electronics to brand-new cars. When you ask for a loan, the lender will check your reputation, but if everything goes well, the money will be in your account soon. Except for loans for big amounts, almost all loans go through the same processes Loans against stocks work similarly as other home loans, but you need collateral to get approved.

People who need money right away and people who want to buy can get loans from financial institutions. So, they don’t just give money to people who want to buy something. Banks offer small-dollar loans to customers without asking for collateral. These include credit cards and personal loans, such as small loans for credit counselling. In addition to loans that need a lot of security, banks are more and more willing to take investments in the stock market as collateral.

For short-term money needs, many financial institutions offer their clients loans against their assets. This group includes loans backed by stocks, government bonds, insurance policies, and other investments. These loans allow people to reach their goals without selling their holdings.

A loan against shares is a great way to get money without giving up something of value. If you want to get a loan against stock or shares, here are some tips to help you understand the pros and cons.

Pros: –

No particular objective:

The candidates can use the loans for anything they want. Like personal loans, the lenders do not ask what the loan will be used for before approving it. This means you can use the money to pay an unexpected medical bill, pay off old debt, or buy a house.

There are no upfront fees:

Lenders will give you a loan against stock for at least one year, which you can extend by making certain payments. Since the loan is short, the lender doesn’t have to punish the client for paying it off early.

Reduced interest rates:

You may have heard this phrase if you’ve recently been looking for a loan. Interest rates are an important part of any loan. It is a fee that the lender charges you every year for the loan. Unsecured loans have much higher interest rates than secured loans. Because of the promise of security, secured loans often have lower interest rates than other types.

Ongoing Dividends and Returns

When stocks are used as collateral for loans,  you can keep making money from your holdings. The lender has no say over any payments, like dividends from preferred shares or interest income from debt. As long as you keep up with your payments, you can keep getting money back from your assets. With this extra money, you could save some for the future and pay off your EMIs.

Cons:-

The sale of stocks:

Once the loan has been accepted, you have less say over your shares. This means that even if you find a good time to sell the shares, you won’t be able to do so because of the loan. After you have paid back the loan, you will fully control the stocks.

Mortgage to value:

This might be a huge surprise for people running for the first time. In response to your request for a loan against shares interest rate, the lender looks at the number of shares you have pledged and makes you an offer. Also, since lenders only give between 60% and 80% of the fund’s value, the amount that can be withdrawn from your account could be less than the stock’s value.

List of businesses:

When evaluating the person’s information, lenders typically pay particular attention to the company name where stocks are now being offered. It would turn down the loan documents if the company weren’t on the list of lenders. So, when applying, you must verify the list.

Shares cannot be sold:

If equity shares are used as collateral for a loan, shareholders may lose out if they can’t sell their shares at the right time. A sharp drop in the value of your shares could make your portfolio worth a lot less. The lender may then ask you to pay back some of the principal and lower the maximum amount of the loan based on the value of the shares. After you pay back the loan in full, you will have full control over all investments again.

Loan Against Stock

A loan against stocks is a loan that can be received quickly by using the stocks as collateral. By putting up your stocks as security, you can borrow up to Rs. 10 crores at low-interest rates. You can easily get the money you need by getting a loan against stocks.

A stock is a general term for the ownership certificates of any company. Most stocks fall into two categories: common and popular. With common stocks, shareholders can vote on how the company should run. When people own preferred stocks, they have the right to get a certain number of dividends before other stockholders do.

Documents and Eligibility Requirements for Loans against Stocks

Nationality:

Applying for a loan against securities is only open to Indian citizens.

Age requirements:

To be qualified to apply for a loan against assets, a person must be at least 18 years old.

Necessary Documents:

Individual consumers are asked to present their most recent passport-size photo, identity evidence, address proof, or document verification of securities.

Lowest security value:

Customers must have a low-security value of Rs. 4 lakh, be employed or self-employed, and have a steady source of income.

You need a steady source of income and a security worth at least Rs. 4 lakh.

You can apply for a loan against stocks online by giving the lender the information they need about your finances and yourself. Your interest rate will be based on the value of your security and the length of time you want to pay back the loan.

Conclusion

Loans are a great way to pay for wants and needs. It’s easy to apply for a loan. After the lenders (banks) check your credit, the money will be in your account soon if everything goes well. This service is best for people who need a certain amount for a one-time expense. For more information, you can visit the Piramal Finance website and explore their products and services.

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