Understanding the Eligibility Criteria for Loan Against Shares
Loan against shares is a popular financial product offered by many banks and financial institutions in India. It is a type of loan that allows you to borrow money against the shares you hold in your demat account. The loan against shares is a convenient way to get cash without selling your shares or investments. To avail of a loan against shares, you need to meet certain eligibility criteria set by the lender. In this article, we will discuss the eligibility criteria for loan against shares in detail.
Primary eligibility criteria for loan against shares:
A) Ownership of shares:
For the loan against shares eligibility, you must be the owner of the shares you want to pledge. The shares must be in your demat account, and you should have complete ownership rights to them. If you hold the shares jointly with someone else, the loan amount will be calculated based on your share of ownership.
B) Value of shares:
The value of shares held by you should be eligible for a loan. The lender will determine the loan amount based on the value of the shares. The loan-to-value (LTV) ratio varies from lender to lender. The LTV ratio equals the loan amount divided by the weight of shares pledged. In general, the LTV ratio ranges from 50% to 75% of the value of shares.
C) Marketability of shares:
The shares you pledge should be marketable. The lender should be able to sell the shares without any difficulty in case you fail to repay the loan amount. Therefore, the lender may reject certain shares if they are not actively traded or have liquidity issues.
Secondary eligibility criteria for loan against shares:
A) Credit score:
A good credit score is essential to avail of a loan against shares. The lender will check your credit score before approving the loan. A credit score of 750 or above is considered good. If your credit score is below the threshold, the lender may reject your application or offer a loan at a higher interest rate.
B) Income:
Your income plays a vital role in determining your eligibility for a loan against shares. If you have a regular income source and can repay the loan on time, the lender is more likely to approve your application. Some lenders may require you to have a minimum income level to qualify for the loan.
C) Age:
Your age is an important factor in determining your eligibility for a loan against shares. Most lenders require the borrower to be at least 18 years old to apply for the loan. Some lenders may have a maximum age limit of 60 or 65 years.
D) Shares in the demat account:
The shares that are held in a demat account can be used as collateral for the loan. Therefore, the shares that are free from any encumbrance and are marketable can be offered for a loan against shares.
E) Loan purpose:
The purpose of the loan also affects your eligibility for a loan against shares. Most lenders offer loans against shares for personal or business purposes. If the loan is for a business purpose, the lender may ask for additional documents such as business plans and cash flow statements.
Loan against shares is an excellent option to get cash without selling your investments. However, the eligibility criteria for loan against shares vary from lender to lender. Therefore, it is important to research and compare different lenders before selecting one. It is advisable to read the terms and conditions of the loan agreement carefully to avoid any misunderstandings later. Additionally, it is essential to repay the loan on time to avoid any penalties or legal actions.
Summary:
Loan against shares is a popular financial product offered by many banks and financial institutions in India. To avail of a loan against shares, you need to meet certain eligibility criteria set by the lender. The primary eligibility criteria for loan against shares are ownership, value, and marketability of shares.
The secondary eligibility criteria are credit score, income, age, shares in the demat account, and loan purpose. A good credit score, regular income, and marketable shares are essential to avail of a loan against shares. It is advisable to research and compare different lenders and read the terms and conditions of the loan agreement carefully before selecting one.
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