Loan Against Security, or LAS, is a Secured Loan which is borrowed against a pledge of security. Mutual Fund Units, Government Bonds and Insurance Policies are some of the securities against which you can avail a loan. LAS is a great way to get loans without having to liquidate your assets. The security units you give are kept as a form of collateral, but you can still reap the benefits such as dividends on the securities exposed to the money market.
Here are 4 questions you need to ask yourself in case you are looking to get a loan against your securities:
Q.1 What is the difference between Secured and Unsecured Loans?
here are mainly two kinds of loans; Secured and Unsecured Loan. Unsecured loans take into account your Credit Score and your financial history. Whereas, Secured loans require collateral to be submitted, and the significance of your credit history is less relevant. LAS comes into the category of Secured Loans. That’s why you must know if you want to take loan based on your credit score, or pledge your securities instead.
Q.2 How long is the duration of my loan going to be?
If the securities you are going to pledge fall under the category of money markets, then you should know that LAS might not be the best option for you, as the value of your securities may not remain constant for a long period of time. It is advisable to apply for LAS only if the term is a short period.
Q.3 Will it help me more if I liquidate my investments?
This question should come to mind when you are deciding the total loan amount you want to borrow against your securities. If the sum is short and so is the loan term, you can definitely go for LAS. Keep in mind, even as collateral, the profit that your securities make during the loan period are still yours. Make this decision based on your asset size and the loan amount you need. Liquidating should generally be out of question, as it will come along with the worry to rebuild your assets.
Q.4 Is my portfolio reliable?
This is an important question to consider if you are planning to pledge your Mutual Funds as collateral for LAS. The amount of loan that can be sanctioned will directly depend on the value of your portfolio. As the portfolio will be revaluated on a daily basis, it is important to be sure that you pledge stable value securities so as to avoid the risk of higher interest rate during market downfall.
Visit us at https://www.capitaworld.com/loan-against-shares-and-securities/ to get more out of your investments today.