A loan Against Shares is a type of loan that allows you to borrow cash against certain listed securities like shares, bonds, mutual funds, and insurance. Such loans are secured by stocks or securities listed on public stock exchanges. You can go for a loan against shares if you require immediate financial assistance to fulfill your personal/ business requirements. It is generally taken by self-employed individuals who have some personal shares stored as collateral.
These days there is a tremendous rise in the number of individuals who are opting for this type of loan. The main advantage of it is that it provides the option of borrowing against an asset that is not easily accessible like bonds, savings accounts, etc. But the major disadvantage is that the borrower has to make the payment at higher interest rates as well as high taxes on dividends. The interest rate applicable on Loans Against Shares depends upon the policy of the company where you have invested your share.
There are mainly two types of Loans Against Shares i.e. Secured and Unsecured ones. You can borrow funds either for the short term or the longer term based on your requirement.
A secured loan is a loan in which the borrower pledges some of his equity to the lender. You may opt for such a loan if you want quick money to fulfill your personal/ business needs. In the case of mutual funds, you may borrow funds based on your share value and decide the repayment duration. It is not necessary to disclose your position as a borrower to apply for High LTV Stock loans.
But for unsecured loans, if you do not want to put any security in place, then lenders usually charge high-interest rates. So it is advised that you seek assistance from finance companies or financial institutions before applying for Loans Against Shares. Lenders charge high-interest rates and also ask for hefty processing fees. It becomes difficult for a common man to avail of these loans.
If you want to invest in Loans Against Shares, then choose the best-suited option. Make sure you do not compromise on interest rates and other charges. Go for the loan that suits your budget, needs, and credit history. These loans are an ideal choice for small investors who are interested in diversifying their investment portfolio in stocks and shares but do not have ready cash. Loans Against Shares helps these investors to invest in the stock exchange securities without borrowing money from financial institutions.