We have heard from a number of people about the LAS and its benefits.

How is this loan different from a normal personal loan and why should we consider it in the first place?

In this section, we are going to talk about the pros and cons of the loan against shares.

Pros:

Taking LAS comes with many bearing benefits. LAS is different from normal personal loans and we are going to discuss what benefits we can avail from it:

Lower Interest Rate:

In comparison to normal personal loans, we often pay a lower interest rate on these loans. The value of shares reduces the lender’s risk providing them the opportunity to offer loans at a much lower interest. 

Retain Ownership:

Even after pledging your securities to the lender for the loan, you still have the right to enjoy its ownership. You will still be called the owner of the shares giving you the right to enjoy all the benefits that come with it. This is applicable till the moment you are in a state of paying back the money.

Flexible Repayments:

Unlike normal loans which have a fixed repayment policy, the repayment of the amount under LAS is flexible. Depending on the lender the repayment of the amount keeps on changing. This also gives an opportunity to generate more investment opportunity.

Collateral:

The securities that you have in your demat account can be used as collateral without even selling it. Instead of selling your market securities at a low market rate, you can pledge them against your loan amount. This will also allow you to seek benefits from the securities even after pledging it.

Cons:

The Risk of Default:

There is always a chance to default on your payment. If you fail to repay the loan in the future then the lenders will sell your pledged shares to recover the outstanding amount. This can cost you in losing your investment.

Market Fluctuation:

The value of shares depends on the market movements. There is a high chance that the value of shares fluctuates after taking a loan. If the value of shares declines, then the lenders may ask you to either deposit the fund or reduce the loan amount. This can be stressful as it can affect your future plans.

Opportunity Cost:

Just like the chance of a falling share price, there are also chances where the share price can rise. In that case, you can lose the opportunity to make significant gains in it. Neither you will be able to sell it to make a profit nor you can ask your lender to give more loans based on the performance of the securities.

Impact on Credit Score:

In case if you default on your loan, it may heavily impact your credit score. Your credit score can fall which can make it difficult for you to take loans in the future.

Conclusion:

So, as we know both aspects of LAS, it can be easier for you to choose which side you are on.  Whether you choose to take it or not in both cases, Divadhvik will be there to help you. You can call us at any time regarding this and we will be happy to help you.

Choose wisely, Invest precisely.