Margin Lending Calculator

Marging lending, or loan against shares, is a type of loan where borrower pledges existing shares or securities as collateral to secure financing from a financial institution or lender. This type of loan allows shareholder to access funds without having to sell their shares.

How it works ?
Collateral: The borrower pledges their shares, typically stocks or mutual funds, as collateral for the loan. The lender assesses the quality, quantity, and liquidity of the shares to determine the loan amount.

Loan Amount: The lender evaluates the value of the pledged shares and typically offers a loan amount that is a percentage of the shares’ market value. This percentage can vary depending on factors such as the type of shares, market conditions, and the lender’s policies. Nepal Rastra Bank sets the guidelines that determine the maximum loan amount. At the time of writing, it is 70% of the total value of shares. The total value of shares is also determine using weighted average pricing of the last 120 days.

Interest Rate and Terms: The borrower and the lender agree upon an interest rate, repayment period, and other terms of the loan. The interest rate may be fixed or variable, and the loan term can vary. A term of 1 year is most common.

Disbursement: Once the loan terms are agreed upon, the lender disburses the loan amount to the borrower, typically as a lump sum or in installments, based on the borrower’s needs and the lender’s policies.

Repayment: The borrower is responsible for repaying the loan amount, along with accrued interest, according to the agreed-upon repayment schedule. The repayment can be done through periodic installments or as a lump sum at the end of the loan term.

Risk and Margin Calls: Since the loan is secured by shares, there is a risk involved. If the value of the pledged shares declines significantly, the lender may issue a margin call, requiring the borrower to either repay a portion of the loan or pledge additional shares to maintain the required loan-to-collateral ratio.

Loan against shares can be used for various purposes, such as personal or business expenses, investments, or bridging short-term financial gaps. It is important to carefully consider the terms, interest rates, and risks associated with such loans before entering into an agreement, as the value of shares can fluctuate, potentially affecting the loan repayment and the borrower’s ownership of the shares.

There are a few things to keep in mind before you take out a loan against shares:

1. The interest rates on loans against shares can be high. Make sure that you understand the terms of the loan before you sign anything.
2. You could lose your shares if you don’t repay the loan. If you default on the loan, the lender can sell your shares to repay the debt.
3. The value of your shares could go down. If the value of your shares goes down, you could end up owing more money on the loan than the value of your shares.