A loan against bonds enables you meet your funding requirements in situations when you need money instantly, while keeping your investments intact. Therefore, you can access a significant loan amount while also earning returns on your investments.
The loan against bonds interest rate is lower than that of personal loans as it is secured, and so you can minimise your interest outflow and bridge your short-term financial needs at a low cost. However, as a diligent borrower, you must note these pointers before applying for a loan against bonds so that you can make an informed decision.
Check if your bonds comply with the issuer’s approved scrip list
Lenders sanction loans only against select bonds that are mentioned in their approved list of scrips. Therefore, before applying for a loan, check with the lender to ascertain if your bonds are included in their list. Reputed lenders have a comprehensive list of scrips so you can avail a loan against a wide variety of securities such as mutual funds, bonds, shares, FMPs, ESOPs and IPOs, to name a few.
Examine the loan to value ratio that your lender offers
Usually, most lenders offer a loan to value ratio of 50%. They also look at your credit profile while calculating your loan amount. In addition to these conditions, lenders require your bond portfolio to be of a certain value so as to qualify for the loan. Therefore, you cannot expect to receive a loan amount equal to your bond’s value. If your bonds are worth Rs.60 lakh and the loan to value ratio is 50%, for example, you can expect Rs.30 lakh as a loan.
Borrow on the basis of guaranteed income in the near future
Though the tenor of a loan against bonds differs from lender to lender, it is mostly around 12 months only. This is because it is a short-term loan. If you default on repayment, the lender may exercise lien over your bonds and take possession of the same. Therefore, apply for a loan against bonds only if you have guaranteed income coming your way in the near future.
Choose a convenient loan offering for easier repayment
When looking for a loan against bonds, opt for reputed lenders to make repayment easy and stress-free. Leading NBFCs offers a Flexi Loan facility by which you can reduce your interest outgo and total cost of debt. The Flexi Loan facility allows you to withdraw funds from the sanctioned limit as per your needs and pay interest only on the utilised amount. Also, you can choose to pay interest-only EMIs and repay the principal at the end of the tenor. Most importantly, the Loan Against Bonds offers up to Rs.10 crore at affordable interest rates and the Flexi Loan facility helps you save up to 45%.
Select a lender with minimum prepayment and foreclosure charges
Ideally, you should have a sound repayment plan before applying for a loan. You must aim to be in a position to repay your loan before the tenor, should your financial condition allow this. Whether your investments mature, you earn an annual bonus or enjoy windfall income, your best move would be to repay your loan against bonds and get debt-free quickly, while also reducing the total cost of borrowing.
So, keep the above in mind when you apply for a loan against bonds in order to make financially sound decisions. If you intend to apply for a loan against bonds you can accelerate the process by checking your pre-approved offered. View customised deals on loans to fund your short-term needs in no time at all!