Loan Against Shares: Interest Rate, Eligibility & Features
Investing in the stock market is a great way to build wealth, but did you know that your shares can also help you access funds without selling them?
Yes, it does. A Loan Against Shares (LAS) allows you to leverage your investments to meet urgent financial needs, all while retaining ownership of your stocks.
With the Loan Against Shares interest rate being competitive, this financing option is becoming increasingly popular among investors.
If you are also considering the LAS as an investment option, this blog is for you.
What is a Loan Against Shares (LAS)?
A loan against securities is a kind of personal loan in which you pledge your bonds, mutual funds, stocks, shares, and even life insurance policies as security for the loan amount.
Like overdrafts, it helps you to take money out of your bank account and only pay interest on the amount that was taken out. Loans against property provide a quick personal loan without documents. It also does not need to liquidate securities quickly.
The financial help is based on the pledged security, which is often opened in the borrower’s name, and the interest rate is determined by the amount taken during use.
Pledged security offers consistent cash when needed, preventing the need to sell shares and the loss of bonus and dividend income.
Features of Loan Against Shares
1. Retain Ownership
With LAS you don’t need to sell your shares. Your investments remain untouched. They continue to keep your shares and get the benefits that come with them.
2. High Loan-to-Value (LTV) Ratio
Most lenders do not accept LTV below 50%, it also depends on the type of shares and market conditions. This means you can borrow a substantial amount without liquidating your portfolio.
3. Interest is Charged Only on the Utilized Amount
LAS allows you to pay interest only on the amount you withdraw. The interest rate for LAS comes between 12% to 15%. The rate differs from bank to bank. This makes it an affordable financing option.
4. Quick Liquidity Without Selling Shares
LAS provides instant liquidity, making it ideal for emergency expenses, business investments, or market opportunities where quick funds are required.
5. Flexible Repayment Options
You only have to pay monthly interest payments according to your utilization, and the principle can be returned at any point during the loan tenure (12 months).
Eligibility Criteria for Loan Against Shares
1. Who Can Apply?
If you want a personal loan against stocks, you must be an Indian resident. Applicants must be aged at least 21 years before taking a loan against stock.
2. Minimum Shareholding Requirements
Most lenders require a minimum value of loan against pledge of shares of Rs 50,000. You can take a loan against stocks when a lender accepts and approves as collateral.
3. CIBIL Score & Financial Profile Considerations
A good CIBIL score and a strong financial profile improve your chances of getting a higher loan amount and lower interest rates. You must have a credit score of 700+ to avail of the LAS or Loan Against Securities.
Also read: 10 Tips to Increase CIBIL Score when applying for Home Loan
4. Loan Against Shares Interest Rates
Interest rates on LAS depend on multiple factors like the borrower’s profile, lender policies, and market conditions. Currently, loan against shares interest rates range between 12% and 15% per annum.
5. Documents Required for LAS
The salaried person must present these documents:
• PAN card
• Identity and address proof
• Photograph
• Last 6 months’ bank statement
• Cancelled cheque
• Demat account statement
• Income proof
The self-employed should submit these documents:
• PAN card
• Identity and address proof
• Photograph
• Last 6 months’ bank statement
• Cancelled cheque
• Demat account statement
• Income proof
• Balance sheet and profit and loss account
• Office address proof and the existence of business proof
Loan Against Shares Interest Rates in India
The borrow against shares allows investors to borrow funds by pledging their shares as collateral. Interest rates vary across banks based on the features we discussed above.
Let’s now compare the interest rates of top banks and NBFCs in India, so that they can help you secure the best deal.
Loan against share interest rates offered by Top Banks and NBFCs
BanksInterest Rate (Approx.)
Bajaj Finserv9.50% to 12.00% p.a.
Tata Capital10.50% onwards
State Bank of India (SBI)On the basis of the selected scheme
Axis Bank10.50% to 12.75% p.a.
ICICI Bank08.50% to 19.50%
Disclaimer: The interest rates mentioned above can vary depending on the market conditions.
Also read: Loan Against Property in Mumbai | Lowest Interest Rate
FAQs
Q1. What is the maximum limit for a loan against shares? Generally, the maximum limit for LAS is Rs 20 lakh. But, it also depends on lenders and the type of securities.
Q2. Is it good to take a loan against shares? Yes, LAS is a great option if you need quick liquidity without selling shares.
Q3. Can I pledge mutual funds along with shares? Yes, many lenders allow you to pledge mutual funds. You can also pledge debt, and equity along with shares.
Q4. Can I add more securities to the same loan? Yes, you can add more securities to the same loan. But, it must fulfill all eligibility requirements.
Q5. Should my securities be in the Demat form? Yes, as per the current Indian regulation, you must have a Demat form to process the loan.
Q6. How long does Loan Approval & Disbursal take for LAS? Most LAS applications are processed within 24 to 48 hours, with funds disbursed quickly after approval. If you pledge on a weekend or holiday, then it may take a few more days.
Conclusion
A Loan Against Shares is an excellent tool for investors looking to unlock liquidity without selling their holdings. However, it’s important to assess loan against shares interest rates, repayment capacity, and market fluctuations before applying.
Key Takeaways Before Applying
• Retain ownership of your shares while getting liquidity.
• Interest is charged primarily on the amount you use.
• Choose a lender with competitive rates and flexible terms.
• Ensure you have a strong repayment strategy to avoid share liquidation.
If used wisely, LAS can be a smart financial tool to capitalize on market opportunities or meet urgent fund requirements without disrupting your investments.