Is a loan against bonds market dependent?

Learn more about the factors affecting loans against bonds as a borrowing option.
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3 mins
09-July-2025

A bond is an income instrument through which an investor provides a loan to the bond issuer. Financial institutions provide loans against bonds that an individual can utilise to meet their monetary needs.

These institutions offer loans on such bonds on the basis that the bonds are from a recognised establishment. In addition, loans against bonds work as an overdraft facility. Individuals can withdraw money from a pre-determined credit limit and pay interest only on the utilised amount for the period they utilised it.

Do market conditions affect loan against bonds?

When availing loans against bonds, the market conditions do not impact the credit limit. It does not affect either the principal amount or the interest rate. An individual will get a credit limit of up to 95% of the value of bonds, subject to discretion of each lender, while availing such loans and thereby bonds market dependency does not play any role. However, if an individual opts for a loan against shares, the credit limit will be based on the market value of the shares.

An individual can borrow full, or a part of the limit depending on their requirement and repay it through instalments during the tenure. Furthermore, every time the individual pays an instalment, the principal component of the instalment amount is added back to the limit, making it available once again for borrowing.

What are the features of a loan against bonds?

Following are some features of loan against bond:

  • Individuals need to pay interest only on the loan amount utilised. They need not pay interest on the total approved amount.
  • Loan amount sanctioned depends on the value of a bonds and the overall eligibility of a borrower.
  • Processing fees of a loan against the bond varies from lender to lender. Some lenders may charge a processing fee of up to 4.72% of the credit amount.
  • Interest rates for loan against bonds vary from lender to lender. Some lenders may charge interest rates up to 20% p.a.
  • A borrower can still earn his/her income from bonds while availing a loan against the bonds.
Loan Against Shares
Loan Against Mutual Funds

What are the things to remember before opting for a loan against bonds?

Whenever an individual seeks a loan against bonds, he/she should remember the following:

● Comparing lenders

An individual should perform thorough market research when applying for a loan against bonds and opt for a lender that provides a high loan-to-value ratio depending on the bonds.

● Checking the list of approved instruments

While conducting research, a borrower must ensure that the bonds he/she owns are eligible for availing loan in a lending company’s approved list. Certain instruments are accepted by almost all financial institutions, while some others may be conditional.

● Matching required criteria

When opting for a loan against bonds, it is recommended to check the lending company’s eligibility requirements and the set of documents they need for processing such loans. A borrower must fulfil these criteria to avail such loan facilities.

● Comparing interest rates

Individuals must compare the interest rates provided by various financial institutions. Interest on loans against bonds is not levied on the total credit limit but only on the utilised amounts. Therefore, choosing a lower interest rate will help individuals to save a lot.

How to apply for a loan against bonds?

A borrower can follow the procedure mentioned below while applying for a loan against bonds:

Step 1: Choose and visit the website of a financial organisation

Choose a lender that offers various benefits and visit their website to apply for the loan.

Step 2: Fill in the required details

You may need to fill in basic information like name, phone number, and email ID to proceed with the application.

Step 3: Select the type of securities and fill in the value

After filling out the form, individuals need to select the type of security and fill in the value of the bonds. Check the term and conditions carefully before proceeding with the application process.

Step 4: Post-form fill-up procedure

Post form fill up, the lender will contact you for further proceedings.

The total loan limit will be calculated based on the valuation of bonds and the amount will be made available post-calculation and verification.

Loan against bonds is one of the safest options for availing loans. It is because an individual can earn income while availing of a loan against bonds. This loan is uniquely useful as the borrower needs to pay interest only on the utilised loan amount rather than the total approved credit.

Disclaimer

1. Bajaj Finance Limited (“BFL”) is a Non-Banking Finance Company (NBFC) and Prepaid Payment Instrument Issuer offering financial services viz., loans, deposits, Bajaj Pay Wallet, Bajaj Pay UPI, bill payments and third-party wealth management products. The details mentioned in the respective product/ service document shall prevail in case of any inconsistency with respect to the information referring to BFL products and services on this page.

2. All other information, such as, the images, facts, statistics etc. (“information”) that are in addition to the details mentioned in the BFL’s product/ service document and which are being displayed on this page only depicts the summary of the information sourced from the public domain. The said information is neither owned by BFL nor it is to the exclusive knowledge of BFL. There may be inadvertent inaccuracies or typographical errors or delays in updating the said information. Hence, users are advised to independently exercise diligence by verifying complete information, including by consulting experts, if any. Users shall be the sole owner of the decision taken, if any, about suitability of the same.

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