Need emergency money? Avoid going overboard on loan against securities

Prepaying the loan whenever you have extra funds is a good idea as they do not carry prepayment charge

Tinesh Bhasin
Last Updated at July 28, 2019 21:27 IST

Instead of liquidating your assets in an emergency to arrange money, you can take a loan against qualified financial instruments at attractive interest rates
Interest rates on loans against securities (LAS) vary, depending on the instrument pledged
A borrower can pledge stocks, mutual fund units (equity as well as debt), insurance policies and bonds
Lenders have their own lists of securities that are acceptable. In mutual funds, for example, lenders may accept units of select fund houses. Most banks and non-banking financial companies (NBFCs) have a specific list of stocks against which they are willing to lend
LAS comes with lower interest rates compared to a personal loan, has flexible repayment options, and low processing fees. While pledged, the securities continue to accumulate dividends, bonuses, interest, etc
Usually, lenders require borrowers to service the interest cost each month. The principal component can be repaid according to the borrower’s convenience, without incurring prepayment/foreclosure charges
While there are no prepayment or foreclosure charges, there could be overdraft maintenance fee, stamp duty on the loan agreement, pledge creation fee, de-pledging fee, annual maintenance charges, processing charge, etc.

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