How Does the Market Value of Shares Affect My Loan Amount?

The market value of shares pledged as collateral can significantly impact the loan amount you can avail. Here's how:

• Collateral Coverage Ratio: Lending institutions calculate the collateral coverage ratio based on the market value of pledged shares versus the loan amount. A higher share value allows a higher loan amount at the same collateral coverage ratio.
• Margin Call: If share prices fall below a certain level, lending institutions will issue a margin call requiring you to provide additional collateral to maintain the collateral coverage ratio. Failure to do so can result in your shares being liquidated.
• Loan Renewal: At loan renewal, lending institutions reassess collateral value. If share prices have dropped, you may get a lower loan amount or need to pledge additional shares to maintain the earlier loan amount.
• Interest Rates: Share value fluctuations also impact interest rates charged on loans. Higher share values can qualify you for lower interest rates and vice versa.
• Loan Foreclosure: If share prices fall drastically, lending institutions can foreclose your loan by liquidating your pledged shares. This allows them to recover the loan amount if collateral value drops excessively.

Higher share prices allow you to obtain a higher loan amount at better terms. Falling share prices negatively impact your loan amount, collateral coverage, interest rates, and chances of foreclosure. Thus, the prevailing market conditions directly impact loan terms for borrowers pledging shares. Monitoring markets regularly is advisable.