How to Apply for Loan Against Securities

Learn how to apply for a loan against securities with our comprehensive step-by-step guide. Discover eligibility criteria, required documents, and expert tips to ensure a successful application.
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3 mins read
15-September-2025

Applying for a loan against securities is a crucial financial decision, as it allows borrowers to leverage their investments without selling them. Knowing the process helps in easing the process of obtaining the loan while retaining ownership of the assets. Understanding the terms ensures better management of interest rates and repayment schedules, allowing borrowers to meet financial needs efficiently without disrupting long-term investment plans.

Being familiar with how to apply for this type of loan helps individuals to make informed decisions, optimising the benefits of their portfolio and avoiding any issues during the application process.

Who should consider a loan against securities?

A loan against securities is ideal for investors or high-net-worth individuals who need quick liquidity without selling their investments. It suits those seeking short-term funds for business expansion, emergencies, or personal expenses while continuing to benefit from potential market gains. Borrowers with a strong, diversified portfolio can leverage their holdings effectively without disrupting long-term financial goals.

Eligibility criteria for Loan Against Securities

The eligibility criteria for a loan against securities may vary between financial institutions, but general requirements include:

  • Age: The applicant must be at least 18 years old.
  • Type of securities: Shares, bonds, mutual funds, or other marketable securities are usually accepted as collateral.
  • Ownership: The applicant should have legal ownership of the securities.
  • Income stability: A steady source of income or financial stability is often required.
  • Minimum value of Securities: Lenders typically set a minimum value for the pledged securities to qualify for the loan.
  • Credit score: A good credit history can impact the loan approval and interest rate.
  • KYC compliance: Applicants must fulfil Know Your Customer (KYC) norms with valid identification and address proof.
Loan Against Shares
Loan Against Mutual Funds

Steps to apply for a Loan Against Securities

Here is how to apply for a loan against securities.

  • Choose a lender - Research banks and NBFCs; compare interest rates, loan-to-value (LTV), fees and turnaround time to pick the most favourable terms.
  • Submit application - Complete the lender’s application form online or in person and provide basic loan details.
  • Pledge securities - Offer your eligible securities as collateral and ensure their value meets the lender’s LTV requirement.
  • Submit documents - Provide identity and address proof, ownership evidence for the securities (Demat statement, policy documents, etc.) and any KYC paperwork requested.
  • Loan processing - The lender values the pledged securities, applies the LTV, and reviews your eligibility and credit details before approving.
  • Disbursal of funds - After approvals and formalities are complete, the loan amount is disbursed to your bank account or as agreed with the lender.

Documents required for application

Applying for a loan against securities requires the submission of certain documents to verify identity, financial status, and ownership of securities. Common documents include:

  • KYC documents: Aadhaar/ passport/ voter’s ID
  • PAN card
  • DEMAT holding statement

Having these documents ready ensures a smooth and quick loan approval process.

Advantages of Loans Against Securities

Loan against securities offers several benefits:

  • Easy disbursal: Loans are processed quickly, making it an efficient option for emergencies depending on the
  • No need to sell Securities: Borrowers can access funds without selling their shares, bonds, or mutual funds.
  • Lower interest rates: The interest rate on loans against securities is generally lower than unsecured loans, as the risk to the lender is reduced by the collateral.
  • Flexible repayment: Borrowers can choose between paying interest only or repaying both interest and principal together.
  • Continuous ownership of investments: Even though the securities are pledged, borrowers still benefit from dividends and interest earnings on them.
  • Custom loan amounts: The loan amount is typically based on the value of the securities, allowing flexibility in borrowing.

These advantages make loans against securities an attractive financial solution for those needing liquidity without giving up their investments.

Mistakes to avoid while applying loan against securities

When applying for a loan against securities, borrowers should be cautious of the following mistakes:

  • Over-leveraging: Borrowing more than required may lead to financial stress, especially if the value of the pledged securities drops.
  • Ignoring the fine print: Always read the terms and conditions carefully to avoid hidden charges or fees.
  • Not monitoring the value of Securities: A drop in the market value of your securities could result in a margin call, where you might have to provide additional funds or securities.
  • Missing repayment deadlines: Failing to repay on time can result in penalties or the lender selling off the securities.
  • Underestimating interest rates: Even though interest rates are lower, not understanding how they accumulate over time can lead to larger-than-expected repayments.

Avoiding these common errors can help borrowers fully maximise the benefits of loans against securities.

Conclusion

Loans against securities offer an excellent way to meet financial needs without selling off investments. By understanding the application process, eligibility criteria, and associated advantages, borrowers can leverage their securities effectively. However, it's essential to be mindful of potential pitfalls, such as over-borrowing or failing to monitor the value of pledged assets. With careful planning and adherence to lender requirements, this type of loan can provide a flexible and low-cost financial solution, while allowing borrowers to continue benefiting from their investments.

Frequently asked questions

What securities can I pledge?
You can pledge shares, mutual funds, bonds, government securities, and insurance policies as collateral for a loan against securities. The lender will assess the value of these assets to determine loan eligibility.

How does the interest rate work?
Interest rates for loans against securities are typically lower than unsecured loans. The rate is determined based on the type of securities pledged and the lender’s policies, with interest charged on the outstanding loan amount.

What happens if the value of my securities drops?
If the value of your pledged securities falls, the lender may issue a margin call. You’ll be required to provide additional securities or funds to maintain the loan-to-value ratio, or risk the lender selling your securities.

Can I prepay my loan?
Yes, most lenders allow prepayment of loans against securities. However, some may charge a prepayment penalty or fee, so it's important to check the terms of your loan agreement beforehand.

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