Loan Against Securities: What Is It?

Loan Against Securities: What Is It?
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After you have deposited your securities, an loan against securities is normally made available to you as an overdraft facility in your account. The fact that you can use the loan money to pay for any personal needis one of the most important features of LAS. However, compared to a personal loan, the interest rate on this loan is much lower. Additionally, while there are no restrictions on how you can utilise the loan money, you are not permitted to use it to finance any speculative activity related to capital market investments.

Working process of loan against security

The lender often creates an OD account in your name and bases the interest rate on how much you take from it throughout the utilisation period. You are not required to pay interest on the full sum. You merely need to give the lender the specific security against which you want the loan for them to provide you with dependable cash when you need it most. In this manner, you can continue to reap the rewards of your investment, including any dividend payments and bonus shares.

Regarding loan-related transactions, you can feel secure. As was already indicated, the lender gives you access to a separate overdraft account where you can keep track of all your activities. Additionally, lenders disclose upfront any fees related to the loan, such as processing costs, interest rates for loans secured by securities, etc. You get 24/7 access to your loan account from anywhere in the world. If you require any support or information on the loan, you can also get in touch with your lender’s customer service network.

Know about a fixed deposit 

Customers of banks and non-banking financial institutions (NBFCs) can invest their money in fixed deposits, or fd. People invest a specific amount of money through an FD for a specific amount of time at a specific rate of interest. Although it varies from a financial institution to financial institution, the rate of interest is typically higher than the interest on savings accounts. Fixed deposits are offered for a variety of lengths, from extremely brief tenures of 7 to 14 days to very long tenures of 10 years.

The tenure or maturity duration of the FD determines the interest that will be offered. In comparison to a one-year FD, a 7-day FD will have a lower annual interest rate. This is done to make up for the financial time risk. This is because inflation gradually drives up prices.

Conclusion

A loan against securities is a sort of personal loan where you use your life insurance policies, stocks, bonds, mutual funds, fixed maturity plans and other securities as security or collateral with the lender in exchange for the loan amount. Like overdrafts, loans against securities allow you to take money out of your bank account and only pay interest on the money you use.

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