Loan Against Securities: Pros and Cons

   When it comes to borrowing against your investment portfolio, a loan against securities is considered one of the more common loan products. But is it right for you? In this article, we'll look at some of the benefits and cons of borrowing against your securities. It's always good to consider all options, positive and negative before making a final decision. So let's get Started...

What are securities?

     Securities are investment instruments that can be held as legal property. There are two types of securities: common and preferred. Common stocks represent ownership in a corporation, while preferred stocks represent an interest in a company. 

What is Loan Against Securities?

    The loan against securities is a way of borrowing with an interest rate that is significantly lower than the interest rates on other short-term loans. The loan is initially issued against your securities, and the value of that security is collateral for the loan. This decreases the amount of time it takes to pay back the loan and can result in cash savings because you don't need to revert your collateral back into cash from stocks and bonds at the end of each month (although this will depend on what kind of loan you take out). A loan against securities is much different than a traditional bank loan.

Loan Against Securities: Pros and Cons

Pros of taking a loan against securities - 

There are too many advantages of taking a loan against Securities such as Loan against securities offering low-interest rates, no collateral, high loan amounts, etc let's see in detail... 

Easy and Simple Process - Like all other loans there is no complex method to avail Loan against Securities. It is fairly easy to take a loan against securities. 

No income proof required - You get all other loans, such as a personal loan home loan car loan only when the lender is satisfied with your income statement. But in this case, no need to show your income proof your stocks are enough to get loan approval.    

Good for short-term needs - This type of loan is a very good option for short-term needs.

Part prepayment option available - You get a Part prepayment facility which helps to reduce the burden of loans and helps to pay off debt earlier. 

You stay invested - Although you get a loan against Securities you stay invested and your shares are yours just you don't have possession until you make repayment of that loan 

The credit score is not essential - For this Type of Loan Credit Score is not Essential and you get easy approval to loan against Securities. 

Cons of taking a loan against securities

     A Loan against securities is quick and easy, but it's not for everyone...there are some Disadvantages of a Loan Against Securities lets see...

No Right to Use Securities:  The biggest cons of taking a loan against securities are that you will lose the right to use your securities and deal in them.

Your risk of losing assets increases -  The repayment has to be made carefully since not doing so can lead to your securities being sold at market rates and the loss of long-term capital gains benefits.

No Access during Emergency - If you took a loan against securities You may not be able to use these assets if you need them in case of emergency

Conclusion - 

Loan Against Securities is a good option if you are looking for finance and have Demat accounts with plenty of stocks.

See Also...

Loan Against Shares (SBI): Everything You Need To Know

Home Equity Loan : Everything You Need To Know

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