Published on May 2, 2022Updated on Nov 30, 2023
Loans are a good way to finance wants and needs. Banks and Non-Bank Financial Company (NBFCs) now provide loans to assist to buy nearly anything, from electronic goods to a brand-new car. The loan application process is straightforward: You can apply, the lenders (banks) assess your creditworthiness, and if everything goes well, the funds will be deposited into your account shortly. This solution is perfect for individuals who need a certain sum for a one-time need.
On the other hand, individuals (or business entities) may often need to borrow small amounts of money to manage short-term needs which can be easily repaid within a short time frame at periodic intervals of time. In such cases, it would be better to have a line of credit facility against which small amounts can be borrowed and repaid quickly. A loan against shares facility would be an excellent solution in such cases (providing that the individual owns listed shares). A loan against shares is now commonly issued as an overdraft with a credit limit set by the pledged securities. The borrower has the option of utilizing the entire sanctioned limit or a portion of it, depending on the funding needs. The borrowers can borrow and repay small amounts with this facility as many times as they like until the time comes for renewal. The interest is charged only to the utilized amount until it is repaid.
In order to meet urgent money requirements, it may not be a good option to sell securities and stocks as it can result in a potential loss that can be gained on long term shares. A loan against your stock is a great concept to borrow money at a lower cost (when compared to unsecured loans) without risking your assets. If you're thinking about applying for one, here are some pros and cons of a loan on shares to help you understand the benefits and drawbacks of a loan against shares.
After looking at some advantages, let's dive in and evaluate some disadvantages. Below are some cons listed for taking loans against shares.
Unable to sell shares if they are trading at a higher price: If the stock market rises, the borrower will be unable to sell the shares since the bank has placed a lien on them. This implies that they can miss out on the chance to sell the stock at a greater price. In addition, if they are unable to repay the loan, the bank may be allowed to sell the shares, resulting in the loss of blue-chip stocks.
Considering the pros and cons, make a decision that suits you. SMFG India Credit offers eligible applicants a loan against securities like shares at attractive interest rates. Apply today to know more.
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