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calenderApr 5, 2024

Loan Against Securities: Meaning, pros & cons

Picture this: You've got a box full of investments like shares and bonds, kind of like a secret stash of treasure. Imagine if you could get some cash using this stash without giving any of it away. That's what Loan Against Securities (LAS) is all about. It's like unlocking your treasure chest to get some money out without losing any of your treasure. You still own everything, but you also get the cash you need for whatever comes up. Pretty cool, right? Let’s take a closer look at how LAS works and how it can help fulfill your financial needs and your investment dreams.

Understanding Loan Against Securities

Loan Against Securities (LAS) is like a financial master key. Instead of selling your valuable investments — think stocks, mutual funds, or bonds — you can simply pledge them as collateral to get a loan. This way, you don't have to say goodbye to your investments; they continue to have the potential to grow while you get the cash you need.

The beauty of LAS lies in its simplicity and effectiveness. You use the value of your investments as a security blanket for the loan. This means the amount you can borrow is directly linked to how much your pledged securities are worth. It's a quick and efficient method to access funds, ensuring your investments can keep working for you even as you meet your current financial needs.

Pros and cons of Loan Against Securities

To make an informed decision, it’s crucial to weigh both the advantages and potential drawbacks of LAS.

Pros:

  • Your securities continue to earn potential returns, dividends, or interest, as applicable.
  • Generally, LAS comes with lower interest rates than unsecured loans, making it a more economical borrowing option.
  • The ability to quickly access funds provides a convenient solution for unexpected financial needs or investment opportunities.
  • Tailored repayment options mean you can plan your finances more effectively without straining your cash flow.

Cons:

  • If the market value of the pledged securities falls significantly, you might need to pledge additional securities or repay part of the loan.
  • Only individuals or entities with a portfolio of eligible securities can avail of this facility, limiting its accessibility to a broader audience.
  • While you may not need to make principal payments until the end of the term, the accruing interest can add up, increasing the total repayment amount.

Also Read: Smart strategies for responsible utilisation of Loans Against Securities

Wrapping up

Opting for a Loan Against Securities could be your financial game-changer, offering both substantial liquidity and the retention of your investment benefits. It’s a strategic move to access needed funds while your assets continue to work for you, striking the perfect balance between financial readiness and long-term growth.

Axis Bank's Loan Against Securities offers a convenient, 24x7 borrowing service with an attractive interest rate starting at 9.99% for online processing. You can get high-value loans up to 85% of your security's value, ensuring you have substantial funds when you need them. With LAS, you're equipped to handle life's financial surprises while your investments continue to thrive.

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.