Finance

Explore the Advantages of Loans Against Equity Shares

Loans against equity shares or commonly known as loan against shares (LAS) have become quite popular in recent years. They are an easy and convenient source of finance, where individuals pledge their shares for a loan. The value of the loan is determined by the market value of the shares pledged. In case of default, the lender has the right to sell the shares in the market.

Equity shares are often the most valuable assets an individual or a company holds. With loan against equity shares, individuals or companies can unlock the value of their shares without having to sell them. This can also help in avoiding the loss of ownership rights that come with a decrease in the number of shares held by an individual or a company.

Loan against shares is secured finance, which means that lenders have a lower risk of default on their loan amount. This makes loan against shares a viable option for individuals who require substantial funds without having to put their other assets at risk.

Advantages of Loans Against Equity Shares

1. Quick and Convenient

Loan against shares is a quick and convenient way to obtain money. The application process is straightforward and can be completed online or at a bank branch. The approval process is quick, and the loan amount can be disbursed within a few days of loan approval.

2. Flexibility

The amount of the loan against equity shares is determined by the market value of the shares pledged. This means that the loan amount can be substantial, depending on the value of the shares. It can be used for various purposes like home renovation, education, business expansion, or any other financial requirement.

3. Competitive Interest Rates

The loans against shares interest rates are usually lower than unsecured loans like personal loans or credit cards. The interest rate is linked to the market valuation of the shares pledged. The lower interest rates make the loan more affordable for the borrower.

4. No Prepayment Penalty

The borrower can prepay the loan without any penalty charges. If the borrower has extra funds, they can clear the loan without any additional charges. This helps in saving on the interest paid over the loan tenure.

5. No Collateral Required

The loan against shares are secured loans, which means that the shares pledged serve as collateral. The borrower does not need to pledge any other asset as collateral for obtaining the loan.

6. No Impact on Credit Rating

The loan against equity shares does not impact the borrower’s credit rating. The loan is not reported to credit bureaus, and therefore, has no impact on the borrower’s credit score. This means that the borrower can have multiple loan against equity shares without it impacting their credit rating.

7. High Loan to Value Ratio

The Loan to Value ratio (LTV) is the amount of loan disbursed against the value of the shares pledged. The LTV is usually high, up to 80% of the market value of the shares pledged. This makes loan against equity shares a good financing option for individuals or companies who require a high amount of finance.

Conclusion

Loan against shares is a popular financing option amongst individuals and companies. It is a quick and convenient way to raise funds without having to sell the shares. The interest rates are competitive and are linked to the market value of the shares pledged. The loan against equity shares has a high Loan to Value ratio, and the prepayment is allowed without any charges. Overall, loan against equity shares is a convenient and viable financing option for individuals and companies who require substantial funds without having to pledge any other assets as collateral.

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