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Loan against Securities vs. Loan against Property

Whether it’s a loan against securities (LAS) or a loan against property, both fall in the category of secured loan. When considering choosing either option, it is critical to understand the difference between them. This blog piece covers everything you need to know about them. Let us first start with the former – the loan against securities.

Insights into the loan against securities

A loan against securities is a loan advance to borrowers against the investments they pledge as collateral. It is, as mentioned above, a secured loan. Borrowers may access it by submitting Demat Shares, Mutual Funds, Insurance Policies, Bonds, and other stock market investments to the bank against the capital they want to raise. If, for example, they use shares as collateral, it is known as a loan against shares.

  • Loan duration

When talking about the loan tenure, it is generally 12 months but is renewable. It makes it a suitable loan option for borrowers seeking a short-term loan.

  • Interest rates

The interest rate on a loan against shares and other financial securities is considerably low (starting from 8% p.a. flat), depending on the lender you choose and the EMI plan you take.

  • Documents needed

A loan against securities guarantees quick capital in your account with minimal documentation. KYC documents are all you would need to get such a loan. Plus, it gives you the facility of digital application.

  • The loan amount to be offered

The loan amount you get on a loan against Mutual Funds and shares depends on the value of your assets. It is 50% to 75% of the value of the securities you pledge as collateral. Banks and NBFCs offer the loan based on the Loan to Value (LTV) ratio. For example, if you take a loan against Mutual Funds from Abhi Loans, the LTV ratio for Equity Mutual Funds would be 65% and 75% for Debt Mutual Funds. In simpler words, you will get Rs. 75000 if you submit debt MF units of a market value worth Rs. 1,00,000.

Things to know about loan against property

Like (LAS), a loan against property is also a secured loan type that needs collateral for approval. When taking this loan, you will have to mortgage the property that belongs to you. The property could be land, a residential house, or a commercial space. The assets remain collateral with the lender until the borrower pays the entire loan. If the borrower defaults to pay the loan amount, the lender secures the right to sell the property to recover the due amount.

  • The loan tenure

The loan tenure of a loan against property is much longer than that of a loan against securities. It could be 15 to 20 years, based on the EMI plan one chooses.

  • Interest rate

As it is a secured loan type, the interest rate is again low (13-17% p.a.). But because the loan tenure is longer, the sum of interest is hefty.

  • Documents required

The list of documents for a loan against property is rather long. And every paper included has to be in proper condition and well-updated. The borrower may need to submit the receipt of the latest maintenance, water tax, municipal tax, Permission to create Equitable Mortgage from society, Non-encumbrance letter from co-op society, and Permission to create equitable mortgage from society.

  • The amount offered

A loan against property can get you about 80% of the value of the property you pledge as collateral.

Which one is better?

Both loan types have their own benefits. A loan that fits one’s needs does not necessarily mean the same for you. If you require funds to meet your short-term financial needs, a loan against securities is a wiser choice. And if you need a long-term loan, the other option should be your go-to choice.

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