What is a Collateral Security Loan?

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3 mins read
21-July-2026

In summary

Collateral security loan against eligible financial assets lets you unlock liquidity without selling your investments, making it a practical way to meet funding needs while continuing to benefit from potential market growth.

  • Eligible collateral includes listed equity shares (LTV up to 50%), debt mutual funds (LTV up to 90%), and insurance policies (LTV up to 90% of the surrender value), subject to lender eligibility.
  • Eligible applicants can typically receive funds within 24–48 hours, allowing quick access to finance while retaining ownership of pledged assets.
  • A loan against specified security generally charges interest only on the amount utilised rather than the entire sanctioned limit, helping optimise borrowing costs.
  • Indian citizens aged 21–90 years who own eligible securities and meet the lender's requirements can apply for this financing option.
  • If the value of pledged assets declines significantly, the lender may issue a margin call, so maintaining a buffer above the minimum permitted LTV is advisable.

Apply for a Loan Against Securities with Bajaj Finance to check your eligibility and access funds against your eligible investments without selling your portfolio.


Ever wondered how to raise funds without selling off your hard-earned investments? Imagine needing a sizeable amount for your business or a personal commitment, and instead of liquidating your shares or insurance policy, you simply use them as collateral. That’s where a loan against collateral security becomes your best ally.

This option lets you tap into the value of your existing securities, without losing ownership. Whether it's shares, mutual funds, or insurance policies, your portfolio can do more than grow wealth. It can help you access it.

Get a high-value loan against your securities without selling them. Apply for a loan against securities


What is collateral security?

Collateral security refers to any asset like shares, mutual funds, bonds, or insurance policies that you pledge to secure a loan. It acts as a safety net for the lender, ensuring that they can recover the loan amount if you default. The asset remains in your name, but the lender holds a temporary claim over it until the loan is fully repaid. In short, collateral security is a loan enabler, not a substitute for your investment.


What is a loan against collateral security?

A loan against collateral security is a secured credit facility where you pledge your financial assets like shares, mutual funds, bonds, or insurance policies to avail funds. The amount you can borrow depends on the Loan to Value (LTV) ratio of the pledged assets.

The best part? The ownership of your securities stays with you. You continue to earn dividends or interest while using your assets as a financial cushion.

In essence, collateral security is a loan tool that helps you handle planned and unplanned expenses without breaking long-term investments.


Why choose a loan against collateral security?

Let’s say you have an urgent requirement of Rs. 5 lakh to invest in business expansion. Selling your mutual funds now could mean incurring capital gains tax or booking losses in a bearish market. A smarter option? Pledge those mutual funds and get a loan, quickly and efficiently.

Key benefits:

  • Speedy disbursal – Funds can be released within 24–48 hours
  • Continued asset ownership – You retain rights and earnings on the security
  • Competitive interest rates – Lower than most unsecured loan options
  • Flexible repayment – Interest-only EMI options are available
  • No end-use restriction – Use the funds as you wish
Loan Against Shares
Loan Against Mutual Funds

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.

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.

2. Medical emergencies

Access immediate liquidity without tapping into your savings.

3. 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.

4. 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:

FeatureLoan against collateral securityUnsecured loan
Collateral requiredYesNo
Interest rateLower (starting 8–15%)Higher (13–24%)
Processing speed24–48 hours2–4 days
Loan amountHigher (based on LTV)Limited by credit score
Ownership of AssetRetainedNA


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 21–90 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:

  1. Term loan – Fixed EMIs on the entire loan amount.
  2. 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 Finance for collateral security loans?

Bajaj Finance 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 Finance 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

Frequently asked questions

What types of assets can be used as collateral?
Yes, a savings account or fixed deposits can be used as collateral for secured loans. Financial institutions often accept these liquid assets, as they are easy to assess in terms of value. When using a savings account or fixed deposit as collateral, the loan amount granted is typically a percentage of the balance or the value of the fixed deposit.

Can I use my savings account as collateral for a loan?
Yes, a savings account or fixed deposits can be used as collateral for secured loans. Financial institutions often accept these liquid assets, as they are easy to assess in terms of value. When using a savings account or fixed deposit as collateral, the loan amount granted is typically a percentage of the balance or the value of the fixed deposit.

What are the risks of using collateral for a loan?
The key risk of using collateral for a loan is losing the pledged asset if you default on the loan. The lender has the right to seize and sell the collateral to recover the loan amount. Additionally, fluctuations in the market value of the asset, particularly for investments or real estate, may increase the risk if the asset’s value decreases significantly.

How does collateral affect my loan interest rate?
Offering collateral significantly reduces the lender's risk, which typically results in a lower interest rate on the loan. The security provided by the collateral gives the lender assurance that they can recover the loan amount in case of default, allowing them to offer more competitive and affordable interest rates compared to unsecured loans, which carry higher risks for the lender.

What happens if I fail to repay a collateral loan?

If you fail to repay, the lender has the right to liquidate your pledged collateral to recover the outstanding amount. This helps minimize risk for the lender and impacts your creditworthiness as well.

How is the value of my collateral determined?

The collateral’s value is assessed based on its current market price and liquidity. Lenders may also apply a margin or haircut, resulting in a loan-to-value (LTV) ratio that determines how much loan you can get.

How is the value of my collateral determined?

The value of your collateral is based on its current market value, assessed by the lender. For financial assets like shares or mutual funds, this is determined using live NAVs or share prices. For physical assets, lenders may use appraisals or standard valuation practices.

What is collateral for a secured loan?

Collateral is an asset you pledge to the lender to secure a loan. It reduces the lender’s risk, as they can recover the loan amount by selling the collateral if you default. Common examples include property, shares, mutual funds, or insurance policies.

What is a collateral security loan?

A collateral security loan is a secured loan where you pledge assets such as shares, mutual funds, fixed deposits, bonds, or property. The lender provides funds based on the value of the pledged asset, which acts as security against default.

What assets can be used as collateral for a loan?

Assets such as shares, mutual funds, insurance policies, fixed deposits, etc. can be pledged as collateral. The type of acceptable security depends on the lender’s policy.

How does a loan against shares work?

A loan against shares is offered by pledging listed shares as security. The loan amount depends on the market value of the shares. You continue to own the shares, but the lender can restrict selling them until the loan is repaid.

What is the maximum loan amount I can get against collateral?

The maximum amount depends on several factors, including the type of collateral/loan, its market value, lender policies, and risk assessment. Generally, you can get 50–80% of the asset value as a loan.

Do I lose ownership of my assets when I pledge them as collateral?

No, you do not lose ownership. You retain ownership of the pledged assets, and they remain in your name. However, you cannot sell or transfer them until the loan is fully repaid. The lender only holds them as security.

How is the interest rate for a collateral security loan determined?

Interest rates depend on the type and quality of collateral, loan amount, market risks, borrower profile, and lender policies. Secured loans usually have lower interest rates than unsecured loans because they involve less lending risk.

What is a margin call in a loan against securities?

A margin call happens when the value of the pledged securities falls below the lender’s required value. You may be asked to repay a portion of the loan or pledge additional securities to maintain the required collateral value.

Is it better to take a collateral loan or an unsecured loan?

Collateral loans are generally better if you want lower interest rates, higher limits, and quicker approvals. Unsecured loans are useful when you don’t want to pledge assets but usually come with higher interest rates and stricter eligibility.

What documents are required for a collateral security loan?

Common documents include identity proof, address proof, recent bank statements, income proof (if required), and ownership proof of the collateral. The exact documentation varies based on asset type and lender guidelines.

Can I use property as collateral for these types of loans?

Yes, property can be used as collateral for secured loans. Many lenders accept residential or commercial property as security. However, loans against securities like shares or mutual funds usually do not require property as collateral.

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