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Loan Against Shares – Merits and Demerits

Merits & Benefits of Loan against Securities

Lower interest rates

Share loans have lower interest rates than personal loans or other unsecured loans because they are secured. As a result, this facility is very popular. While major banks and NBFCs usually charge an interest rate as high as 15%, Rurash Financials can assist you in availing of Loan against security at an Industry lowest interest rate of 8.5%

There is no specified purpose:

A loan may be used for any purpose by the applicant. Just like personal loans, lenders don’t ask what the loan will be used for before agreeing to give it. A home purchase, a debt repayment, or a medical emergency can be covered with this money.

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No prepayment penalties:

The majority of lenders who offer loans against shares have a one-year minimum term that can be extended by paying a certain amount. Due to the short term, lenders do not charge prepayments.

Having examined some merits, let’s take a closer look at some demerits. Below are some demerits listed for taking loans against shares.

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    Demerits of Loan Against Shares:

    1. Loan to Value (LTV)

    Lenders make offers based on the value of the shares pledged by borrowers seeking loans against them. However, because lenders only offer upto 50%-85% of the value of the security, depending on its nature, the amount sanctioned in the borrower’s account may be less than the stock’s worth. Compared to traditional assets like immovable property, financial assets like shares are riskier due to the volatility of the stock market.

    2. Companies on the list

    As lenders examine the applicant’s database, they often pay attention to the company whose stocks are being pledged. If the company does not appear on the list of lenders, the loan application will be denied. The borrower must therefore review the list of companies before applying.

    3. Selling stocks:

    The borrower loses a certain amount of control over equities after getting a loan. As a result, if they wish to sell their shares at a later date for a profit, they will be prohibited from doing so by the loan. If the borrower pays off the loan, he or she will gain complete ownership of the stocks.

    4. Unable to sell shares if they are trading at a higher price

    As long as the bank has placed a lien on the shares, the borrower will not be able to sell them if the stock market rises.

    Consequently, they may lose out on the opportunity to sell the stock for more. Also, if the borrower can’t pay back the loan, the bank may be able to sell the shares, which means that blue-chip stocks will be lost.

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