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Tata Capital > Blog > Loan on Securities > How Loan Against Shares Work?

Loan on Securities

How Loan Against Shares Work?

How Loan Against Shares Work?

If a person owns shares in the open market, they can apply for a loan against shares. There are several benefits attached to availing of such loans. The article describes how loans against shares benefit people by allowing them to borrow conveniently.

What is a Loan Against Shares?

The loans against shares process are loans taken against financial assets like shares, mutual funds or life insurance policies. The financial assets act as collateral or surety to the bank.

A loan against shares helps people use their financial assets more efficiently. It prevents people from hastily selling their shares. The limit of loan they can pledge on their shares is based on the number of shares they own and the bank where they are availing the loan.

How Does the Loan Against Shares Process Works?

Market Shares are a vital financial asset. They are instrumental in times of unprecedented need.

After they pledge their shares, the bank gives them an overdraft facility, from which they can withdraw any money out of their total loan amount. The applicant will be liable to pay interest only on the amount they withdraw. 

The following example helps explain it better:

Suppose an applicant receives a loan of Rs. 2 lakhs. The applicant only withdraws Rs. 1.5 lakhs with a repayment tenure of five months. As per the bank's overdraft policy, they will charge interest only on Rs. 1.5 lakhs (amount withdrawn) and not Rs. 2 lakhs. 

Besides, people can also pledge shares of their relatives, including their spouse, parents, and siblings, who are above the age of 18 years. But in this case, the relative has to play the part of being a co-applicant and should sign the overdraft agreement.

What are the Benefits of Loans Against Shares?

The main benefits are as below:

  • A loan against shares is a secure loan.

The loan is not dependent on the borrower’s creditworthiness but on the security of the shares he has submitted. Loans against shares are given only to shares which are readily marketable and which are free from disabilities.

  • Loans against shares have a lower interest rate than personal loans. 

Interest Rate is very important for any person pledging a loan. Interest rates vary for all kinds of loans. Secured loans have a lower interest rate compared to unsecured ones.

  • The borrower can use the loan pledges against shares for any purpose of their wish. 

The lenders will not ask about the meaning of the loan during the approval process. Hence, borrowers have complete freedom in the usage of their loans.

  • Loans against shares need no pre-payment or foreclosure charges.

Most of the loans pledged have a minimum tenure of one year. A person can extend to a longer period by paying a particular amount. Still, the tenure period is short in the case of loans against shares. 

Repaying the loan early does not incur any prepayment or foreclosure charges. It allows the applicant to repay the EMIs at their convenience. 

  • You can smoothly switch pledge between the securities within your financial portfolio. 

It depends on the stock market assessment performed by the applicant. It allows them to enjoy the benefits of bonuses, rights and dividends, etc. Since the ownership of the financial products remains with the borrower, the idea of a loan proves to be lucrative for them.

  • The amount that one receives as a loan depends on the type of security. 

Using mutual funds as the security help secure a loan for up to 70% of the net asset value. On the other hand, approved scripts can provide amount up to 50% of the market value.

Other advantages include:

  • The loan pledged on shares is processed very quickly and easily.
  • Loans against shares are determined based on the current market value of the shares. One can quickly evaluate these market values.
  • People can extend the repayment of these loans quickly and flexibly.
  • They can quickly pledge these loans against shares at nationalised banks and financial institutions.

Interest rates for different banks

Lender's NameInterest RateLoan AmountTenure
HDFC BankAs per the bank's discretionStarting Rs.50,000 Varies based on the amount of loan 
Bajaj Finserv9.50% to 12.00% p.a.Up to Rs.10 croreVaries based on the rate of interest and amount of loan
ICICI BankDepends on the amount withdrawn and tenureRs.50,000 to Rs.20 lakhVaries based on the rate of interest and amount of loan
Tata CapitalStarting - 10.50% Rs.50,000 to Rs.20 lakhOne year and it comes with a renewable auto feature
State Bank of India (SBI)Depends on the selected schemeRs.20,000 to Rs.5 crore (Depends on the selected scheme)Varies based on the rate of interest and amount of loan
Axis Bank10.50% to 12.75% p.a.Up to 85% of the value of securitiesVaries based on the rate of interest and amount of loan


To summarize, lending against shares is more secure. 

You can avail of a loan in the range of INR 5 lakhs to INR 20 lakhs at an interest rate starting at 10.5%. With flexibility in swapping securities and another benefit such as zero foreclosure charges, you can reap many benefits. 

Moreover, the process of application is smooth and hassle-free. 

Looking for more information on the subject? 

Want to learn about the process of making an application? Head on to our page and get in touch with our executives.

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