“LAS” stands for a loan against securities. This way of borrowing money is not so well-known than a loan with traditional collateral.
Getting a loan is never an easy thing, especially when it comes to serious amounts. In order to get a bank loan (which is always more beneficial than a private company loan), the borrower has to have an excellent credit history and high credit score.
When it comes to loan against securities, your credit history does not have that much meaning to a lender, as he is protecting his money through your securities and gives you the amount that is equal to your collateral market price. The age range for the LAS is 18-65 years.
In what form the LAS could be granted?
There are two ways a loan against securities can be physically delivered to a borrower.
- Overdraft. You are getting the overdraft against the value of your securities at the bank where you already have an account. It’s the most convenient way as all procedure is quick and requires fewer documents as your account is already open.
- A new current account. Once your new account is opened, it’s totally up to you what sums of money you will withdraw and how you will use the money. Take a note, that the great advantage of this type of account is that you pay interest to a lender only for the amount which is physically withdrawn from your account and used. The rest of the money that remains on the account is “free” for you in terms of interest rate.
What is the benefit of LAS?
The borrower doesn’t have to withdraw the securities from the portfolio or “freeze” it in order to get the money. The huge advantage of LAS is that the borrower just has to provide the bank with the certificate of ownership that proves the securities belong to this person. Thus, the borrower gets the loan, in accordance with the market value (current value) of the securities he owns. Besides, the borrower keeps all the benefits of the shareholder (including dividends). In fact, Loan against Securities is the most convenient and psychologically comfortable option not only for individuals but also for business owners.
For example, you, or your company faces an urgent need in quick money for the certain project. You can have funds by selling some of your securities on the market, but you will lose time, and potential profit your securities will bring you in the future.
Loan against securities is an opportunity to get the needed amount without doing anything with your shares or bonds – the lender evaluates them and grants you the loan.
What types of securities could be accepted by a bank for getting a loan?
- NABARD bonds
These are the bonds issued by the National Bank for Agriculture and Rural Development (NABARD). Such bonds are very attractive for investors as they have pretty decent yield and offered in three options: half-year bonds, yearly and cumulative bonds.
- Insurance policies
Types of insurance policies accepted by the different lenders vary, so you should ask your lender whether your policy suits for getting the LAS.
- UTI bonds
UTI bonds are the safe and reliable type of securities that offer good profitability while the price of UTI bonds has low volatility and therefore it is perfect collateral for lenders.
- Dematerialized form of shares (Demat shares)
Demat shares mean any shares that are converted from the physical certificates into the electronic form. Shares must be from the list which is traded on the open market. Value is determined by the current market price.
- Mutual Fund units
Units of mutual funds are simply shares that any investor can buy or redeem at the certain date. As collateral for the Loan against securities, Mutual fund units are evaluated by the current fund’s rate which is a net asset value per one share.
Different banks and lenders have their own criteria of eligibility and requirements to borrowers. Still, there are common requirements you should meet in order to receive LAS:
- you should be the resident of the country and you should be older 18 years;
- you should have decent credit score;
- you should not have previous legal issues related to trading, securities, and activity on the exchange.
You can get instant cash to your money, granted against securities with no set-up or maintenance fees. This is, probably, one of the most efficient and fast ways to get money for the variety of purposes. Typically, banks lend amounts equal to 50-95% of your securities value.