Many borrowers focus on the securities they pledge when applying for a Loan Against Securities, such as stocks, Bonds, Mutual Funds, or even Fixed Deposits. However, one key factor that plays an essential role in determining the interest rate of a Loan Against Securities is your creditworthiness.
Even though a Loan Against Securities is a Secured Loan, your credit score and credit history still influence the terms, especially the interest rate. Here is how your creditworthiness can affect the interest rate on a Loan Against Securities.
What is a Loan Against Securities?
A Loan Against Securities is a Secured Loan where you pledge financial assets like stocks, Mutual Funds, or Government Bonds as collateral to borrow funds. Since the Loan is secured, lenders usually offer it at lower interest rates than Unsecured Loans like Personal Loans. However, the interest rate can still vary.
How does creditworthiness affect Loan Against Securities interest rates?
Even though your securities secure your Loan, lenders still assess your creditworthiness to determine your ability to repay the Loan. Here is how your creditworthiness impacts the interest rate:
Decent credit scores
You are considered a low-risk borrower if you have a high credit score of 700 or more. It means you have a proven track record of making timely payments. Lenders view you as more likely to repay the Loan even if there are fluctuations in the value of the securities you have pledged. The higher your credit score, the more trust the lender has in your creditworthiness.
Average credit scores
If your credit score is in the average range of 600-699, you may still qualify for an Instant Loan Against Securities, but the terms may be unfavourable as they would be for a borrower with a higher credit score. In this case, lenders may offer you a higher interest rate because your credit history suggests there may be some risk in repayment. Lenders compensate for this perceived risk by increasing the rate at which they lend to you.
Poor credit scores
Your Loan application may be considered high-risk if your credit score is below 600. A low score often signals missed payments, defaults, or financial instability. Even though you provide collateral as securities, lenders are still concerned about your ability to repay the Loan. In such cases, lenders may offer you a significantly higher Loan Against Securities interest rate or even deny your Loan application altogether.
Conclusion
While your assets secure a Loan Against Securities, your creditworthiness still plays an important role in determining the interest rate and Loan terms. A higher credit score results in a lower interest rate and more favourable terms, while a lower score leads to higher rates or even rejection. Before applying for a Loan Against Securities, it is a good idea to check your credit score and work on improving it if needed.
