Secured Loan Meaning: What is it and how it works

A secured loan generally follows a collateral-based borrowing process.

1. Pledge collateral

The borrower offers an eligible asset as security for the proposed loan.

2. Asset evaluation

The lender assesses the asset's value, ownership, eligibility, and other applicable conditions.

3. Determine borrowing capacity

LTV: The Loan-to-Value ratio determines how much can be borrowed against the collateral.

For example, Bajaj Finance states up to 50% against approved shares.

It also advertises up to 90% against eligible mutual funds.

4. Complete documentation

The borrower completes KYC, application formalities, and collateral-related requirements.

5. Pledge creation and disbursal

For securities, the applicable pledge or lien process is completed before funds are released.

6. Repay the borrowing

The borrower services the outstanding amount according to the agreed repayment structure.

7. Release collateral

After applicable obligations are completed, the lender releases the security according to the facility's procedure.

Collateral requirement

A secured loan requires an eligible asset that satisfies the lender's requirements.

Potentially lower interest rates

Collateral can reduce lender risk and may support more competitive pricing. However, the actual rate depends on the product, borrower profile, and lender.

Higher borrowing capacity

Secured borrowing can support larger amounts when adequate collateral is available.

Asset-linked borrowing

Loan amount: The eligible amount depends partly on collateral value and applicable LTV.

Continued ownership 

The borrower generally retains ownership of the collateral while meeting loan obligations. However, the asset remains subject to the lender's security rights.

Default-related risk

Failure to repay can result in enforcement against the pledged asset under applicable terms.

Secured loans vary according to the asset offered as collateral.

Home loans

The property being financed generally serves as security for the home loan.

Auto loans

The financed vehicle generally secures the borrowing until applicable obligations are completed.

Loan Against Property

Existing residential or commercial property can be offered as collateral for eligible funding requirements.

Gold loans

Eligible gold ornaments can be pledged to obtain secured financing.

Loan Against Securities

Eligible shares, mutual funds, bonds, and certain insurance policies can secure borrowing.

Bajaj Finance currently offers multiple securities-backed facilities, including shares and mutual funds.

Loan Against Fixed Deposit

Loan amount: Bajaj Finance currently states borrowing of up to 75% against eligible fixed deposits.

Secured business loans

Businesses can pledge eligible assets such as property, machinery, or other acceptable collateral.

Lower borrowing cost potential

Collateral can reduce lender risk and may result in competitive interest rates.

Higher funding potential

A valuable asset can support higher borrowing than some unsecured facilities.

Longer repayment options

Certain secured products offer longer tenures, depending on the lender and loan category.

Access liquidity without selling investments

A Loan Against Securities lets investors access funds without immediately liquidating eligible investments.

Continued investment exposure

Pledged investments can remain invested while serving as collateral, subject to product terms.

Flexible liquidity for HNIs

Investors with substantial portfolios can use eligible securities to manage temporary liquidity requirements.

Potentially easier collateral-based assessment

The lender can assess collateral value alongside the borrower's overall eligibility.

Looking for a low-interest loan with high limits? Get up to Rs. 50 crore by pledging your securities. Apply for a loan against shares

Documentation depends on the lender, asset, borrower type, and loan category.

Common requirements can include:

• PAN: Used for identity and financial verification.
• Identity proof: Aadhaar, passport, driving licence, or other accepted documents.
• Address proof: Accepted documents confirming the applicant's residential address.
• Bank details: Required for disbursal and repayment arrangements.
• Income documents: May be required for certain secured facilities.
• Collateral documents: Ownership or holding evidence for the pledged asset.
• Demat statement: Required for relevant securities-backed facilities.

For Bajaj Finance's Loan Against Securities, listed documents include PAN, identity and address proof, and demat holding statement. The final documentation list should always be checked against the selected product.

Step 1: Check eligibility

Review the lender's borrower and collateral requirements before applying.

Step 2: Select the secured loan

Choose the facility based on your requirement and available collateral.

Step 3: Check the eligible loan amount

LTV: Calculate the indicative borrowing amount using the lender's applicable LTV.

Step 4: Complete the application

Submit the required personal, financial, and collateral-related information.

Step 5: Complete verification

The lender verifies the applicant, asset, ownership, and required documentation.

Step 6: Create the security

The applicable pledge, lien, mortgage, or hypothecation is completed.

Step 7: Receive disbursal

After approval and completion of required formalities, funds are provided according to the facility.

Bajaj Finance provides an online process for several Loan Against Securities products.

Risk of collateral enforcement

Default can expose the pledged asset to enforcement and recovery proceedings.

Market-linked collateral risk

Shares and mutual funds can fluctuate in value after being pledged.

Drawing power: Bajaj Finance states that borrowing availability can change with pledged-security market values.

Additional repayment pressure

A decline in collateral value can affect available borrowing capacity under applicable terms.

Additional costs

Processing fees, documentation charges, renewal costs, or other applicable charges can increase borrowing costs.

Credit impact

Missed repayments can adversely affect your credit profile, despite the loan being secured.

Asset restrictions

Pledged investments may face restrictions on selling, switching, or transferring them.

Understanding secured loan meaning becomes easier when compared with unsecured borrowing.

Define the funding requirement

Determine whether you need short-term liquidity or longer-term financing.

Match the collateral

Choose a facility based on the asset you can comfortably pledge.

Compare borrowing costs

Review interest rates, processing fees, renewal charges, and other applicable costs.

Check the LTV

LTV: A higher LTV can provide more funding but can also increase collateral exposure.

Evaluate repayment flexibility

Check whether the facility supports part payments, drawdowns, or other suitable repayment options.

Consider collateral volatility

Market-linked securities can fluctuate and affect borrowing capacity.

Assess the risk of default

Never pledge an asset without understanding the consequences of missed repayments.

For investors, a Loan Against Securities can be suitable when liquidity is required without immediate asset liquidation.

A secured loan allows you to borrow against an asset while using that asset as collateral. It can offer higher funding, competitive pricing, and flexible borrowing options. The right secured loan depends on your requirement, available collateral, borrowing cost, and repayment ability. Investors can consider a Loan Against Securities when they need liquidity without selling eligible investments. Bajaj Finance offers securities-backed facilities against approved shares, mutual funds, bonds, and insurance policies.

Turn your assets into instant credit. Borrow against mutual funds, shares, or bonds with zero selling pressure and fast approvals. Apply now for a loan against securities