Loan Against Securities: 7 Misconceptions You Should Stop Believing

Loan Against Securities (LAS) is one of those financial products that sounds too good to be true – accessing cash without selling your investments.But thanks to common misconceptions, many people hesitate to explore it further.

In reality, LAS can be a useful tool when you need funds quickly but don’t want to disturb your long-term financial plans. Let’s address the top myths surrounding LAS and get the facts straight.

Key Takeaways

• LAS lets you access funds without selling your investments
• Understanding myths can help you avoid unnecessary costs or confusion
• LAS is a flexible, regulated borrowing option in India

Is Loan Against Securities Risky?

Many people think borrowing against investments is a high-risk move. Here’s where that idea falls short.

Myth 1: LAS jeopardizes your investments

The truth is, your investments aren’t sold or withdrawn when you take an LAS. Instead, a lien is placed on them, which means you can’t sell those particular units until the loan is closed. But they remain invested, and you continue earning returns just as before.

For instance, Ramesh had ₹2 lakh invested in mutual funds. When he needed quick cash for a family emergency, he used LAS. His funds stayed intact and continued growing.

Myth 2: LAS carries hidden charges

LAS offerings are more transparent today than ever before. Most lenders clearly outline interest rates, processing fees, and other terms. If you take the time to review the agreement, there should be no unpleasant surprises. Just make sure to compare a few providers and read the Key Fact Statement.

Myth 3: Only shares qualify for LAS

It’s not just about stocks. Mutual funds, ETFs, and some bonds are also acceptable as collateral. So even if you’ve never traded shares, you could still be eligible for an LAS if you have mutual fund holdings.

Does Loan Against Securities Cost More?

It’s common to think LAS is expensive or inflexible, but here’s how it actually compares.

Myth 4: LAS interest rates are excessively high

In reality, LAS interest rates often start lower than those for personal loans or credit cards. While personal loans may range from 12-24% p.a. and credit cards can go as high as 36-42% p.a., LAS rates typically begin around 10-11% p.a. You also pay interest only on the amount you withdraw, not the full sanctioned limit.

For example, if you’re approved for ₹3 lakh but use only ₹60,000, the interest applies only to ₹60,000 - not the full ₹3 lakh.

Myth 5: LAS repayments are rigid

Unlike traditional EMIs, many LAS products allow interest-only repayments. This gives you breathing space to repay the principal when it suits you. There’s often no penalty for prepayment either, which adds flexibility.

Can Anyone Easily Qualify for LAS?

People often assume LAS is only for wealthy investors or that it’s a long, paperwork-heavy process. Not quite.

Myth 6: LAS approval is complex and slow

Most lenders now offer completely digital processes. You can complete KYC, verify holdings via DigiLocker or CAMS, and get loan approval within the same day. The disbursal too can be quick - sometimes within a few hours.

Myth 7: You need excellent credit scores

Since LAS is a secured loan (backed by your own investments), eligibility criteria are usually more relaxed compared to unsecured loans. Your credit score does matter, but it’s just one part of the equation. Lenders also consider the type and value of the securities you’re pledging.

Conclusion

A Loan Against Securities can be a practical solution when you're low on liquidity but want to preserve your long-term investments. Myths often cloud the actual benefits, discouraging people from considering what might be a more affordable, efficient credit option.

If you’ve been unsure about LAS, refer to this guide by Quicklend to know more about LAS and what to watch out for – and what not to worry about. Take the time to compare offers, understand the terms, and see if it fits your financial needs.

This is general guidance. For personalized loan advice, consider speaking to a financial advisor.