What is loan against security?

Banks are the intermediaries who bridge the gap between savers and investors. Thus, the main function of the bank is to deposit money and sanction loans. While the bank promises to repay the deposits with interest to the depositors, the borrowers who take loan must repay money along with interest.

Thus, the loan against security is a loan that is sanctioned by pledging a collateral of security or shares in favor of the bank.

What securities can be pledged for loan against security?

1. Life insurance policies
2. Demat shares
3. Mutual fund units
4. National savings certificate
5. Kisan vikas patra
6. NABARD and UTI bonds
7. Non-convertible debentures

Features of Loan against security:

• The loans are secured by pledging assets or investments.
• You can offer shares, debentures, mutual fund units, and life insurance as collateral.
• The loan against mutual fund units is based on the closing or the previous week’s NAV.
• The loan tenure is usually one year and can be extended if required.
• The rate of interest ranges from 12% to 15% per annum, with a one-time processing fee of 1% to 2%.