Collateral plays a vital role in getting a loan approved quickly and on favourable terms. It reduces the lender’s risk and boosts your chances of securing higher loan amounts at better interest rates.
Here’s why it matters:
- Increases trust between you and the lender
- Improves eligibility even with limited credit history
- Enables higher ticket sizes
- Accelerates disbursal, often within 24–48 hours
- Reduces interest rates as risk is partially covered
Types of securities you can pledge
You might be wondering what exactly counts as a “collateral security”? Here’s a look at commonly accepted assets:
1. Equity shares
Get funds by pledging listed shares. As their market value fluctuates, your LTV eligibility might vary daily.
2. Mutual funds
Both equity and debt mutual funds are accepted. You can continue to benefit from NAV appreciation while using them as collateral.
3. Insurance policies
Life insurance with a surrender value can also be used. Policies from reputed insurers typically qualify.
4. Bonds and debentures
Certain listed bonds and non-convertible debentures can be pledged for a loan.
Have shares or mutual funds lying idle? Put them to work. Apply for a LAS today
How does the loan against specified security work?
Let’s break it down with an example.
You own shares worth Rs. 10 lakh. The lender offers you an LTV of 50%. You’re eligible for a loan of up to Rs. 5 lakh.
- Your shares are pledged but not sold.
- The loan is credited to your account.
- You pay interest only on the amount you use.
- Once repaid, your securities are unpledged.
It’s that simple. This type of loan offers immense flexibility and control, especially during cash crunches.
When should you consider a loan against collateral security?
Not sure if this fits your financial journey? Here are a few scenarios where this solution works brilliantly:
1. Business funding
Need working capital or want to upgrade equipment? Use your investments to raise funds without approaching investors or selling assets.
1. Medical emergencies
Access immediate liquidity without tapping into your savings.
2. Travel or education expenses
Planning a family vacation or need funds for higher education abroad? A loan against specified security can help, without putting your savings at risk.
1. Market downturns
When markets are down, selling securities may lead to losses. A loan lets you hold on and wait for a rebound.
Loan against collateral security vs. unsecured loans
You may be tempted to take a personal loan or swipe a credit card for quick funds. But here’s a quick comparison:
Feature
|
Loan against collateral security
|
Unsecured loan
|
Collateral required
|
Yes
|
No
|
Interest rate
|
Lower (starting 8–15%)
|
Higher (13–24%)
|
Processing speed
|
24–48 hours
|
2–4 days
|
Loan amount
|
Higher (based on LTV)
|
Limited by credit score
|
Ownership of Asset
|
Retained
|
NA
|
Smarter than selling, better than unsecured borrowing. Use your securities to raise funds affordably. Apply for a loan now
Eligibility criteria and documents required
Getting started is simpler than you might think. Here’s what you typically need:
Eligibility:
- Indian citizen aged 18–90 years
- Valid ownership of securities
- Steady income source (for salaried/self-employed)
Documents:
- KYC documents (PAN, Aadhaar)
- Bank statements (3–6 months)
- Demat account or mutual fund portfolio statement
- Income proof (for higher amounts)
The lender evaluates your assets and determines the loan-to-value ratio and the final loan amount accordingly.
What is Loan to Value (LTV) and why it matters?
LTV is a critical factor in deciding how much loan you can get. It’s calculated as:
LTV = (Loan amount ÷ Value of pledged securities) × 100
Different asset classes have different LTV caps:
- Equity shares: up to 50%
- Debt mutual funds: up to 90%
- Insurance policies: up to 90% (based on surrender value)
Lenders also consider market volatility, asset liquidity, and the issuer rating before approving loans.
How is interest charged in a loan against collateral security?
Interest in such loans is often charged only on the amount utilised, not the sanctioned limit. This is especially useful if you don’t need the full amount at once.
Two common interest models:
- Term loan – Fixed EMIs on the entire loan amount.
- Overdraft facility – Interest-only on used amount, with flexible repayments.
Choose the model that matches your financial behaviour.
Risks and points to consider
While loans against securities are largely low-risk, here are a few points to keep in mind:
- Market volatility: A drop in the value of your pledged asset may lead to a margin call.
- LTV recalculation: Some lenders re-evaluate LTV daily or weekly.
- Ownership loss (only if default): In case of non-repayment, the lender can liquidate your pledged securities.
Being financially disciplined and choosing reputed lenders can mitigate these risks.
What happens if you default on a secured loan?
In the rare event that you default on your secured loan, the lender may invoke their right to liquidate the pledged security to recover the outstanding dues. While this protects the lender’s interest, it could result in the loss of your pledged asset and impact your credit score. That’s why timely repayment is key.
How to mitigate risks when using collateral?
Using your assets as collateral is smart—but it comes with responsibilities. Here’s how to protect your financial position:
Tips to maximise the benefits of a loan against specified security
Want to get the most out of your loan? Here’s how to stay one step ahead:
- Choose the right securities: Assets with stable value and high liquidity are ideal.
- Keep track of market movements: This can help you maintain LTV.
- Don’t borrow the entire sanctioned amount unless absolutely necessary.
- Use the overdraft option for better interest control.
- Repay early to save on interest if you can.
Why choose Bajaj Finserv for collateral security loans?
Bajaj Finserv offers collateral security loans with a seamless application process, competitive interest rates, and high loan-to-value ratios. Whether you're pledging shares, mutual funds, or insurance policies, you can expect quick disbursal and flexible repayment options. With minimal paperwork, end-to-end digital access, and expert support, Bajaj Finserv ensures that your investments work harder for you unlocking immediate liquidity without selling your assets. It's a smart, efficient way to meet urgent financial needs.
Conclusion
If you have ever thought of getting a loan without giving up on your investments, then a loan against collateral security is the answer. It combines the safety of asset retention with the flexibility of fund access. Whether you are an entrepreneur, a salaried professional, or an investor this financial product empowers you to turn your portfolio into a powerful resource. And with trusted lenders offering streamlined digital journeys, getting started has never been easier.
Ready to make your investments work harder for you? Apply for a loan against securities today
