Why Loan Against Shares is the Smarter Alternative to Personal Loans?

By Comfort Fincap December 2, 2024

Financial emergencies can strike anyone at any time, and in such situations, we often need quick access to funds. During these times, individuals resort to various borrowing options to meet their immediate financial requirements.

While personal loans used to be the go-to choice for many, an increasingly popular alternative has emerged in recent years—a loan against shares. This innovative borrowing option not only offers greater flexibility but also comes with several advantages over traditional personal loans.

But first, what exactly is a loan against shares?

A loan against shares, as the name suggests, is a type of loan that allows individuals to borrow money against their existing securities or investments. The loan amount is determined based on the market value of the shares, bonds, or mutual funds that the borrower holds. The lending institution provides the borrower with a loan equivalent to a certain percentage of the value of these securities. The borrowed funds can then be utilized for any purpose, including personal, business, or investment needs.

Advantages of loan against shares over personal loans

• Lower Interest Rates: One of the key benefits of opting for a loan against shares is the significantly lower interest rates compared to personal loans. Since the loan is backed by tangible securities, lenders often charge a lower interest rate, making it a more affordable borrowing option.
• Quick Approval and Disbursal: Loan against shares offers speedy approval and disbursal as the lender already has the borrower's securities as collateral. This eliminates the need for extensive paperwork and lengthy verification processes, enabling borrowers to receive funds within a short period, sometimes even within a few hours.
• No Impact on Credit Score: When applying for a personal loan, the lender assesses the borrower's creditworthiness, which involves checking their credit score. This inquiry can impact the borrower's credit score negatively. However, in the case of a loan against shares, since the loan is backed by collateral, credit scores have minimal impact on the approval process, ensuring that the borrower's credit rating remains unaffected.
• Flexibility and Liquidity:With a loan against shares, individuals can unlock the value of their investments without having to sell them. This way, borrowers retain the ownership and potential future returns from their securities, while still fulfilling their immediate financial requirements.
• Lower Eligibility Criteria: Loan against shares often has relaxed eligibility criteria compared to personal loans. Even individuals with lower credit scores or unstable income can avail themselves of this borrowing option. As long as the borrower holds eligible securities, they can access funds easily.
• Better Loan Amount: In the case of personal loans, the loan amount is usually decided based on the borrower's income and creditworthiness. However, loan against shares allows individuals to borrow a percentage of the value of their securities. This means individuals can avail themselves of higher loan amounts, providing them with greater financial flexibility.

In conclusion, loan against shares has emerged as a smarter choice over traditional personal loans, offering lower interest rates, faster approval, and disbursal, and minimal impact on credit scores. It provides borrowers with the much-needed flexibility, liquidity, and higher loan amounts to meet their immediate financial requirements. As always, it is crucial for individuals to carefully assess their financial situation, compare different loan options, and choose the one that best suits their needs and circumstances.