Loan Against Shares is a popular type of loan among investors who wish to mobilize funds without selling their shares. It allows an investor to pledge their shares as collateral to secure a loan, instead of selling them. In return, the lending institution provides a loan worth a percentage of the market value of the pledged shares.
However, before you apply for a Loan Against Shares, it is important to check the eligibility criteria. In this article, we will guide you on how to check the eligibility criteria and determine if you are qualified to apply for a Loan Against Shares.
Eligibility criteria for Loan Against Shares
The criteria for providing loan against shares eligibility vary from institution to institution. However, the basic eligibility criteria that most banks and NBFCs look for are:
- Ownership of shares: The loan applicant must own the shares that they wish to pledge as collateral. They must be the registered owner of the shares.
- Age limit: The applicant’s age should be over 21 years and under 65 years.
- Creditworthiness: The lending institution will evaluate the applicant’s creditworthiness to assess the risk involved in offering the loan. They will check the applicant’s credit score, repayment history, and income.
- Market value of shares: The lending institution will assess the market value of the shares being offered as collateral. The loan amount sanctioned will depend on the market value of the shares.
- Tenure of shares: The shares being offered as collateral must be free from any encumbrances and should have a clear title. They should have been held by the applicant for a minimum of six months.
- Type of shares: The lending institution may have restrictions on the type of shares that can be pledged as collateral. For example, they may not accept shares of unlisted companies or those that are not traded actively.
- Quantity of shares: Most lending institutions have a minimum and maximum limit for the number of shares that can be pledged. This limit can vary based on the market value, type of shares, and the lending institution’s policy.
How to check eligibility criteria for Loan Against Shares?
The eligibility criteria for Loan Against Shares can vary depending on the institution. Hence, it is important to check the institution’s specific eligibility criteria before applying. Some of the ways to check eligibility criteria are:
- Website: Most lending institutions have detailed information about their Loan Against Shares on their website. The eligibility criteria will be listed there. You can also use the eligibility calculator to check if you meet the criteria.
- Loan officers: You can visit the nearest branch of the lending institution and talk to their loan officers. They will guide you through the eligibility criteria and help you understand the loan application process.
- Customer care: Most lending institutions have customer care services that provide information on loans. You can call their toll-free number and inquire about the eligibility criteria.
- Comparison websites: There are many comparison websites that provide information on loans from various lending institutions. They can help you compare the eligibility criteria and choose the best lender.
Factors to consider before applying for Loan Against Shares
Before applying for a Loan Against Shares, you must consider the following factors:
- Interest rates: The interest rates for Loan Against Shares can vary widely among lenders. You must compare the interest rates of different lenders and choose the one that offers the most favorable rates.
- Tenure: The tenure of the loan can also vary among lenders. You must choose a lender that offers a tenure that suits your repayment capacity.
- Processing fees: Lenders may charge processing fees for Loan Against Shares. You must factor in the processing fees while evaluating the total cost of the loan.
- Prepayment and foreclosure charges: Check if the lender has pre-payment and foreclosure charges. Some lenders may have steep charges, which can turn out to be a costly proposition if you plan to pre-pay or foreclose the loan.
- Loan to value ratio: Most lenders offer loans up to a certain percentage of the market value of the pledged shares. You must check the loan to value ratio and choose a lender that offers the highest loan amount.
Conclusion
Loan Against Shares is a convenient way for investors to mobilize funds without selling their shares. However, before you apply for the loan, it is important to check the eligibility criteria and evaluate the lender based on various factors. By doing so, you can choose the best lender and ensure a hassle-free loan application process.
