When you need urgent funds, secured loans are often the most cost-effective way to raise money without selling your valuable assets. Two popular secured borrowing options in India are a loan against shares and a gold loan. While both allow you to pledge assets to unlock liquidity, the way they work, the risks involved, and the benefits they offer are quite different. This article explores the difference between loan against shares and gold loan, helping you decide which option aligns best with your financial goals and circumstances.
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What is a loan against shares?
A loan against shares (LAS) is a secured loan where you pledge your equity shares as collateral to access funds. The lender provides a loan based on the market value of the pledged securities.
The biggest advantage is that you retain ownership of your shares and can continue to enjoy dividends, bonuses, and corporate benefits while unlocking liquidity. The securities to be pledged should be included in the lender’s approved list of securities, and the loan amount shall depend on the prevailing market value of pledged securities.
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What is a gold loan?
A gold loan is a secured borrowing option where you pledge physical gold (jewellery or coins within permissible limits) with a lender. The loan amount is determined based on the purity and weight of the gold, and the lender typically provides a percentage of the gold’s value as a loan.
Repayment can be structured through instalments, bullet repayments, or interest-only plans. Once the loan is repaid, the pledged gold is released back to the borrower. Gold loans are popular in India due to the widespread availability of gold assets in households and the quick processing they offer.
While convenient, gold loans require physical gold as collateral, which may not be the preferred choice for individuals who want to keep their family jewellery intact or avoid storing it with a lender.
Loan against shares vs Gold loan
Both options are secured loans, but they differ in terms of asset type, risk, loan-to-value ratio, and other features. The table below highlights the difference between loan against shares and gold loan at a glance:
| Feature | Loan Against Shares (LAS) | Gold loan |
|---|---|---|
| Collateral | Equity shares | Physical gold (jewellery or coins) |
| Loan-to-Value (LTV) | Up to 50% of share value | Up to 75% of gold value |
| Interest rate | Competitive, varies with lender and profile | Usually slightly higher but quick disbursement |
| Risk factor | Linked to market volatility of shares | Linked to gold price fluctuations |
| Accessibility | Requires demat holdings or securities | Requires physical gold assets |
| Flexibility | Overdraft and flexible repayment options | Limited repayment structures, lender-specific |
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Key decision factors: When to choose shares vs gold
When comparing the difference between loan against shares and gold loan, the decision often depends on your financial profile, available assets, and the purpose of borrowing. Consider these factors:
- Availability of assets: If you have an active investment portfolio, pledging shares may be easier. If you own unused gold jewellery, a gold loan may be practical.
- Loan amount requirement: LAS may allow higher limits based on your securities, while gold loans are capped by gold value.
- Market conditions: Shares are influenced by stock market fluctuations; gold loans depend on prevailing gold prices.
- Urgency of funds: Gold loans are processed almost instantly. LAS may take slightly longer but offer more flexible repayment options.
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LTV and interest rates: What you can expect
When choosing between these two secured loans, it is important to understand the loan-to-value (LTV) ratio and interest rate structure.
| Asset type | Typical LTV Ratio | Typical interest rate |
|---|---|---|
| Loan against shares | Up to 50% of approved securities | Competitive, depends on profile and lender |
| Gold loan | Up to 85% of gold’s market value | Usually higher, varies basis lender to lender |
Although gold loans offer a higher LTV, interest rates may be slightly higher than LAS. On the other hand, LAS can be more cost-effective for individuals who plan to use funds only as needed.
