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

• 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.