Comprehensive Loan Against Shares Interest Rates

loan against shares

When it comes to loans, there are several options that one can choose from. An increasingly popular way to secure a loan is through a Loan Against Shares (LAS). A LAS is a form of financing that allows investors to avail themselves of a loan using their investments as collateral. If you’re considering getting a loan against shares, it’s important to evaluate your options carefully, including comparing interest rates across providers. In this article, we’ll provide a comprehensive loan against shares interest rates comparison to help guide your decision-making process.

First, let’s review the basics of a loan against shares. As mentioned earlier, a LAS is a form of financing where you pledge your investments as collateral to secure a loan. These investments could be stocks, mutual funds, or other securities. The amount of the loan will depend on the value of the investments in question. A LAS is considered a popular option because of its attractive interest rates, quick turnaround times, and minimal documentation requirements.

When considering a LAS option, a key factor to ponder is the interest rate. Here’s a closer look at the loan against shares interest rates comparison:

1. Banks

Several banks offer LAS as a financing option. The interest rate charged by banks ranges from 9% to 12%. Some banks might have a minimum loan amount that they disburse, which could range from Rs.5 lakh to Rs.25 lakh. Banks might also keep a margin that would be the percent of the pledged shares’ valuation. This could range from 25% to 50% depending on the bank.

2. NBFCs

Non-Banking Financial Companies (NBFCs) offer LAS services as well. Their interest rates could range from 10% to 16%, making them less attractive than banks in terms of interest rates but still a viable option for those looking for a LAS. They might have a lower margin requirement as compared to banks.

3. Online Lending Platforms

Online lending platforms have now entered the market offering LAS services to investors. They offer quick loan disbursals with minimal documentation requirements, and competitive pricing. The interest rate offered by most online platforms is between 8% to 15%. However, investors need to be cautious while dealing with these platforms as they might not have the same level of credibility as banks or traditional lending institutions.

4. Co-operatives

Co-operatives are community-based organizations that offer financing options to their members. The interest rate offered by co-operatives for LAS is generally lower than banks and NBFCs, ranging from 5% to 12%. However, the caveat is that co-operatives can be more restrictive with their membership, which means they might not be open to all investors.

5. Peer-to-Peer Lending

Peer-to-peer lending is a relatively new concept where investors can directly lend money to borrowers. Investors can offer loans for a lower interest rate than traditional institutions. They can earn a return on their investment and the borrower may be able to secure a lower rate. Typically, the interest rate for a LAS from a P2P lending platform will range from 12% to 20%.

Now let’s look at how to evaluate which loan against shares option to choose based on interest rates comparison. Here are some important factors to consider:

1. Interest Rate

Look at the interest rate charged by the lender and ensure that it is competitive. Compare interest rates across all lenders to understand the market value. While interest rates alone should not be the only factor to consider, it can be a critical factor in determining the cost of the loan.

2. Margin

Margin is the percent of the pledged shares that the lender will keep as collateral. It’s important to understand this figure as it will impact the amount of loan that you can get. Look for lenders who offer lower margins as it can help you secure a higher loan amount.

3. Loan Tenure

Loan tenure is the duration for which you will be required to pay back the loan. It’s important to consider your cash flow and ensure that you will be able to make the repayments on time. Check the tenure period offered by different lenders and choose one that suits your needs.

4. Prepayment Charges

Prepayment charges are charges that borrowers are required to pay if they decide to pay the loan back early. Some lenders might waive off prepayment charges, while others could charge as much as 5% to 10% of the outstanding loan amount. It’s important to consider these charges as sometimes repaying the loan early could save you more in interest than what the charges will cost.

In conclusion, A loan against shares is a new age way to secure financing. It’s important to evaluate all your options carefully, do your research, and compare interest rates across the various lenders. While it’s important to consider the interest rate being charged, it’s equally important to consider prepayment charges, margin, and loan tenure, among other factors. Don’t rush into making a decision and make sure that you fully understand the terms and conditions of the loan before making a commitment.