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How Does Loan Against Securities Work? Find Out Here!

by Victor

So, you are out of funds and urgently looking for instant personal loans or a lump sum amount.

You know one of the finest options available to you is a loan. Indeed, it can meet your urgent needs. 

A loan can cover your expenses and fulfill your urgent needs. However, you must repay this amount later. A lender allows you to repay this borrowed amount in manageable installments over a certain period.

Did you know lenders have great options to fulfill your financial needs? Yes. Considering the urgent needs of the borrowers, they have added extra perks to the loan facilities. 

Now, you have the option to borrow money against your securities. Isn’t that the best option for many of us? Today, you can mortgage not only your home but other property as well to procure a loan. 

Let’s step ahead and walk through the road of loans against securities. This post will cover the meaning, features, benefits, and application process for a LAS loan.

Loan Against Security

With a loan against securities, all you have to do to get a loan from a bank or other financial institution is provide the lender with your investment assets as collateral. This easy fix keeps you from selling your financial products, such as stocks, bonds, mutual funds, etc., too early—especially in an emergency when you really need the money. Alternatively, you might obtain the money you want by offering the lender these items as security. The lender determines the principal amount you can get based on the total value of the pledged securities. Usually, the loan principal is a certain percentage of the pledged securities, with the same guidelines that apply to a loan against property. In addition, the interest rate on the LAS is also determined by the loan payback period that you select. 

How are loans secured by securities made?

Now that we know what a loan against securities is, let’s examine its operation.

Normally, the lender creates an OD account in your name and determines the interest rate by looking at the loan amount you take out of the account during the usage period. Interest does not need to be paid on the total amount of the instant personal loans you take. When you most need it, the lender provides you with regular cash, and all you have to do is promise the specific collateral you want the loan against securities. In this manner, you can keep getting the returns on your investment, including any dividend payments and bonus shares. 

Which securities are acceptable as collateral for a LAS loan?

Most lenders usually accept the following when you seek a loan against securities.

  • Units of mutual funds
  • DEMAT bonds and UTI shares
  • Bonds issued by NABARD
  • Non-convertible debentures

When you apply for a LAS loan, most lenders will accept one or more of the securities listed above. 

Features and Benefits

The principal characteristics and advantages of a loan against shares and securities are as follows:

Higher Loan Amounts

A LAS loan has a minimum amount of 100,000 rupees and a maximum that varies depending on the borrower and the securities that are pledged. 

Interest and overdraft

Like an overdraft loan, the loan against securities only requires you to pay interest on the money you take out of your current account—not on the money you borrowed. 

Basic eligibility criteria

Any recognized depository participant who accepts DEMAT accounts from individuals can offer loans secured by shares and securities. If the units are in demat form, a Demat account is optional for loans against mutual funds. The applicant may apply for the loan with another applicant, who should be an Indian resident or non-resident. However, they must be working for a living and be able to show that they have a steady source of income. 

Documents required for LAS

Here is the list of documents you need when applying for LAS – 

Identity proof documents—A copy of each applicant’s identity verification documents, whether single or joint, must be submitted. 

Address proof—Each applicant must submit a copy of the documentation proving their current and permanent address. 

Income-proof documents—Whether you apply for instant personal loans jointly or separately, copies of your documentation proving your income are required. 

Security documents—To be eligible for a loan against shares and securities, applicants must submit a detailed list of the securities they want to use as collateral. When applying for the LAS loan, you must list each security and, if relevant, the number of units you possess. 

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