When it comes to financing, there are many options available in today’s market. Whether you need a loan for a personal expense or to fund your business, there are various types of loans that can cater to different needs. One such loan is a “loan against shares.”
A loan against shares is a type of loan where a borrower can pledge his/her shares in a company as collateral for the loan. It is a secured loan, and the amount of the loan depends on the value of the shares. If a borrower defaults on the loan payment, the lender has the right to sell the shares to recover the outstanding amount.
Eligibilities for Loan Against Shares
To be eligible for a loan against shares, a borrower must meet certain criteria set by the lender. These criteria usually include:
1. Ownership of shares: The borrower must own shares in a listed company. Lenders typically do not offer a loan against shares of unlisted companies.
2. Age: The borrower must be at least 18 years old to be eligible for a loan against shares.
3. Credit score: Just like any other loan, lenders check the credit score of a borrower before offering a loan against shares. A good credit score indicates that the borrower is financially stable and has a good repayment history.
Features of Loan Against Shares
1. Collateral-based loan: As mentioned earlier, a loan against shares is a collateral-based loan, where the shares held by the borrower act as collateral for the loan.
2. Tenure: The tenure of a loan against shares can range from a few months to a few years, depending on the lender’s terms.
3. Loan amount: The loan amount for a loan against shares is determined by the value of the shares. A borrower can typically get a loan amount of 50%-60% of the value of the pledged shares.
4. Interest rate: The interest rate for a loan against shares can vary depending on the lender’s terms and market conditions.
5. Processing time: The processing time for a loan against shares is usually faster than an unsecured loan, as the loan is backed by collateral.
Benefits of Loan Against Shares
1. Lower interest rates: Due to the collateral, lenders typically offer lower loan against shares interest rate compared to other unsecured loans.
2. Quick disbursal: The processing time for a loan against shares is quick, and the disbursal of the loan amount is usually within a few days.
3. No prepayment penalty: Most lenders do not charge a prepayment penalty for a loan against shares, which means a borrower can prepay the loan without incurring any additional charges.
4. No end-use restriction: Unlike other loans, there are no end-use restrictions for a loan against shares. The borrower can use the funds for any purpose.
5. No impact on credit score: Applying for a loan against shares does not impact the borrower’s credit score, as it is a collateral-based loan.
A loan against shares is a good option for those who need quick funds and have shares in a listed company. However, it is important to note that the borrower must ensure timely repayment of the loan to avoid any negative impact on their credit score or loss of their shares. As with any loan, it is important to read the lender’s terms and conditions thoroughly before signing the loan agreement.