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If a person owns shares in the open market, they can apply for a loan against shares. There are several benefits attached to availing of such loans. The article describes how loans against shares benefit people by allowing them to borrow conveniently.<\/p>\n\n\n\n
The loans against shares process are loans taken against financial assets like shares, mutual funds or life insurance policies. The financial assets act as collateral or surety to the bank.<\/p>\n\n\n\n
A loan against shares helps people use their financial assets more efficiently. It prevents people from hastily selling their shares. The limit of loan they can pledge on their shares is based on the number of shares they own and the bank where they are availing the loan.<\/p>\n\n\n\n
Market Shares are a vital financial asset. They are instrumental in times of unprecedented need.<\/p>\n\n\n\n
After they pledge their shares, the bank gives them an overdraft facility, from which they can withdraw any money out of their total loan amount. The applicant will be liable to pay interest only on the amount they withdraw. <\/p>\n\n\n\n
The following example helps explain it better:<\/p>\n\n\n\n
Suppose an applicant receives a loan of Rs. 2 lakhs. The applicant only withdraws Rs. 1.5 lakhs with a repayment tenure of five months. As per the bank’s overdraft policy, they will charge interest only on Rs. 1.5 lakhs (amount withdrawn) and not Rs. 2 lakhs. <\/p>\n\n\n\n
Besides, people can also pledge shares of their relatives, including their spouse, parents, and siblings, who are above the age of 18 years. But in this case, the relative has to play the part of being a co-applicant and should sign the overdraft agreement.<\/p>\n\n\n\n
The main benefits are as below:<\/p>\n\n\n\n
The loan is not dependent on the borrower\u2019s creditworthiness but on the security of the shares he has submitted. Loans against shares are given only to shares which are readily marketable and which are free from disabilities.<\/p>\n\n\n\n
Interest Rate is very important for any person pledging a loan. Interest rates vary for all kinds of loans. <\/strong>Secured loans have a lower interest rate compared to unsecured ones.<\/p>\n\n\n\n