Loan against various deposits

One can avail loans against his Demat shares, Savings Bonds, Insurance Policies, Mutual Fund units, Fixed Maturity plans, Exchange Traded Funds etc at reasonable interest rates which are more convenient and lesser compared to personal loans. Incidentally, the interest rate on personal loans varies from 13 to 20% so loan against shares is a good option. Now e should compare the other options available at various financial institutes in different schemes. 

If we leave the risk factor aside there is no doubt about the fact that shares give you the best return on your investment. It would be appropriate to mention at this point that investors earned more than 30% profits on their investment during last year.  I am very much sure you know the fact that you can avail loan against your shares from the financial institutes on cheaper interest rates compared to what you pay for your personal loans. You will be surprised to note that last year only people utilize this scheme and availed more than 52% loan amount during the last year only 

The Limit of loan and Interest rates

There is a maximum limit of 50% of loan amount you can get against your shares from your banks. It's a simple procedure as you need to pledge your Shares, Mutual funds or Securities as collateral. The interest on loan against shares is charged on the amount that you utilized but not the entire loan amount sanctioned by the financial institutes against your shares. The private financial sector is little more flexible and time consuming with lesser formalities compared to government sector but Reserve Bank of India rules restrict them from giving more than 50% amount as loan against securities. 

The interest rates differ based on duration which at this time is in between the range of 10% to 13.6%. Some of the leading banks like State Bank of India charges 12.7% which you can avail against your shares to enable you to meet contingencies, personal needs or even for subscribing to rights or new issue of shares. As usual the interest is chargeable on amount used and not the entire amount sanctioned. Axis bank is charging the interest at the rate of 10.5% to 12.5%, ICICI bank @ 10.2 to 13%. The maximum limit of loan amount is 20 lacs and the minimum amount sanctioned is Rs one lac. The SBI offers to sanction Rs 50,000 as minimum amount.  

The terms for loan against securities

Most bank offer to repay within one year to two and a half years with condition that if the share market reacts too sharply or the rates of your shares go down lower than the specified limit the banks may ask you to deposit the difference. The banks generally evaluate the value of securities at a predetermined time bound program which may vary from one week to one yearly basis. Banks charge you interest for the amount you withdraw from your loan account besides the fixed processing and other related fees and charges. A prospective loan seeker must know every rule before signing the agreement and read the fine print carefully. 

Most banks sanction loans offer loans to salaried employs with minimum service of two years duration and one year’s service in the current company. Their processing charges are up to 2.5% and in addition to that service tax shall also be also applicable, it is worth mentioning here that some of the banks use different terms for processing charges like ‘Review Charges’. However, a Demand Loan is to be liquidated in maximum period of 30 months and a Running Overdraft is subject to renewal every year.

Loan against PF

This is another very good option for employs willing to take loan as the rate chargeable is 2% extra than what you get (8.7%) at the present moment the effective interest rate is 10.7% with two options to repay the loan. You can pay the interest occurred before completion of three years or pay the basic amount after three years and the amount of interest either in full or monthly installments. You should keep in mind that if you fail to fulfill the stipulated terms the amount will be deducted from your PF account at the end of financial year. 

Loan against FD 

The banks provide you instant loans against your fixed Deposit Receipts (FDR) at 2% extra rate than what you get on your FDR. The amount sanctioned is up to 75% of your FDR value and in some cases depend upon the discretion of the sanctioning officer to decide what should be done in a particular case. It is advisable to repay the loan before the maturity date of your FDR or the bank deducts the loan amount from your FDR with interest and penalty at the time of maturity. However the process of loan is easy as the bank already has required documents with them. 

Loan against your property, Life insurance policy and Gold

You can avail loans against properties and residential home with lower interest rates but the amount sanctioned depends on value fixed by bank appointed valuer but it takes time besides has more formalities to complete. The loan against gold is easy to get but according to RBI rules one can avail this loan for a maximum period of one year therefore this lone should be taken if you know that your needs are for short term only or having no other alternative as the interest rate on gold loan is higher than all other loans. One can avail the loan on his life insurance policy also at the value and interest rate calculated by insurance company which in general stands at 90% of the surrender value of the policy (a value that you get in case you surrender it before maturity). A loan against life insurance policy is good if it caters your financial needs as it can be taken for a long time.

Conclusion

The loans against your own assets are certainly beneficial as you pay interest at far lower rates which in long term could save you a good amount. However the interest rates keep changing according to Reserve Bank of India guide lines and if the current trends are any indication the rates are due for changes in near future so it’s wise to take the current rates into account.  For example the State Bank of India provides loans against shares at the current rate at 3.00% above base rate which is 9.30 so the effective rate is 12.30% per annum.  Loan against Bank Time Deposits is currently at 1.00% over the rate paid on relative time deposit which will be according to your deposit scheme. The time is right for the investment so if you wish to avail any of these loans against your own investments you should explore the possibilities. 


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