The share market is much more than just trading shares to garner profit on every possible opportunity. Investors or the shareholder can also leverage their current shares for getting loans from the banks. Yes, banks offer different schemes for equity share loans for the people in the requirement of instant cash. In order to understand the whole concept of equity share loans, you need to know the basics things first. The equity shares are the shares that an individual offers to others in return for cash like in company owners sales the ownership in for shares. These shares are called equity shares. For an example, if a startup requires an amount of money to continue its work, the owner announces to sell the shares to others. A limited amount of shares which represents a portion of the ownership in return of money for the company.
Similarly, the banks offer loan to the people in return for their shares. If a person applies for the loan against its shares the bank first discloses the list securities it takes against the loans. So, first, you need to make sure shares comes under the bank’s securities list for getting the loan. Then the bank calculates the value of loan it could give you against the provided securities. The loan provided is the value of the securities that you are offering to the bank. The price at which bank calculates your loan against the share will always be less than the actual per unit price of the share. Most of the time the percentage of the offered loan ranges between the 50% to 70% value of the shares you are offering and these are called collaterals.
The Process
Once apply for the equity share loans a draft a current account including the overdraft service will be opened by the bank in your name. The borrowing amount limit for the investors is defined according to the collateral values. Using the borrowing facility investors can borrow the desired amount anytime and can repay it by depositing into the current account. Most of the experts and share traders prefer the equity share loans for cars, homes and other schemes offered by the bank. These loans are more flexible and simpler than the EMI-loans given by the banks.
Interest Value
The interest value on Loan against Securities is much lower than that of the credit card or a personal loan. This is because the value or amount you borrowed is secured with the collateral for the bank. The interest value on the LAS changes every month as depend on the daily outstanding balance information of the overdraft account.
The LAS is mostly preferred because being very simple and flexible, once the limit is et by the bank according to the collateral value, investors can draw loan anytime. The money dance borrowed using the ATM or the net banking without any struggle or issue. The amount could be paid either by cash or transfer to the current account.
Note
The equity share notes may contain better offers and benefits than other type’s loan but there are certain things you need to take care while going for it. Make sure that you have gone through all the terms and conditions of the bank about providing the loans against securities. All the banks have different cases and collateral value calculation process for the offering. If you don’t play smart you may end up in taking the loan that could cost a bigger loss. Go through every detail available in the scheme of the equity share loan you are looking for.
