What is a Pledge Loan? Definition and How it Works

There are times when financial needs arise suddenly, be it paying for a child’s education, covering medical expenses, or addressing a business cash crunch. While selling off your investments may seem like a quick solution, it could result in losing long-term growth potential or disrupting financial goals. This is where a pledge loan comes in. A pledge loan or a loan against securities allows you to borrow by offering an asset as security, without permanently parting with it. Whether you hold shares, mutual funds, or an insurance policy, you can unlock their value for immediate liquidity.

Access instant funds through a pledge loan while keeping your assets intact. Apply online 

What is a pledge loan?

A pledge loan or a loan against securities is a secured loan where an asset you own is pledged, or a lien-marked as collateral in exchange for funds from a lender. The asset could be securities such as shares. Unlike unsecured loans, which are given based only on creditworthiness, pledge loans involve collateral. This makes them safer for lenders and more affordable for borrowers.

For example, if you own equity shares worth Rs. 5 lakh, you can pledge them to borrow around Rs. 2.5–3.5 lakh, depending on the loan-to-value (LTV) ratio. The shares remain in your Demat account, and you continue to receive dividends and corporate benefits. However, the lender has a charge on them until the loan is repaid.

So, if you are wondering “what’s a pledge loan?” it is essentially a way of using your own assets to gain liquidity without selling them.

Types of secured loans

Secured loans are versatile and can be taken against different kinds of assets. Here is a breakdown of the common types:

Example scenario:

Imagine you have a 5-year fixed deposit of Rs. 10 lakh that is earning you annual interest. Instead of breaking it mid-way, which reduces returns, lien mark it for a loan of Rs. 7–9 lakh. This way, your FD continues to earn interest, and you get liquidity when needed.

Leverage your shares, or insurance policies for a pledge loan and receive quick, flexible funding options. Apply now

What are the advantages of pledging a loan?

Pledge loans come with several compelling benefits, especially compared to unsecured credit options like personal loans.

• Lower interest rates: Since the loan is backed by collateral, lenders offer relatively lower rates. This helps reduce your repayment burden.
• Ownership retention: You do not lose the benefits of your asset, such as dividends from shares or maturity value from insurance.
• Quick access to liquidity: Pledge loans are processed faster, often within 24–48 hours, making them ideal for urgent needs.
• No restriction on usage: The funds can be used for personal expenses, education, home renovation, or even business expansion.
• Flexible repayment: Most lenders offer flexible repayment options, including overdraft-style facilities where you pay interest only on the amount utilised.

Real-life example:

Consider Ravi, who had Rs. 8 lakh invested in mutual funds. He needed Rs. 3 lakh urgently for his child’s college admission. Instead of redeeming his funds and disrupting long-term goals, he pledged them for a loan. He got the money in 24 hours, and his mutual funds continued to grow. 

Enjoy lower interest rates and retain your asset benefits by applying for a convenient pledge loan online today. Apply now

What are the disadvantages of a pledge?

Despite its advantages, it is important to understand the risks and limitations of pledge loans:

• Risk of asset liquidation: If you default, the lender has the right to sell your pledged asset.
• Market risk exposure: For securities-based loans, a sharp drop in market value can lead to margin calls, requiring you to add collateral.
• Restricted loan amount: The LTV ratio limits how much you can borrow. You may not be able to access the full asset value.
• Additional charges: Processing fees, valuation charges, and other administrative costs may reduce the net amount you receive.

Example scenario: Suppose you pledged shares worth Rs. 5 lakh at a 60% LTV ratio and borrowed Rs. 3 lakh. If share prices fall to Rs. 3 lakh, your lender may demand additional collateral or partial repayment to maintain LTV.

How to apply for a pledge loan: Step-by-step process

Applying for a pledge loan is relatively simple and can often be done online. Here’s a typical process:

1. Check eligibility: Verify if your asset qualifies for pledging with the chosen lender.
2. Select loan type: Decide whether to pledge shares, mutual funds, or an insurance policy.
3. Submit application: Fill out the application form online or at a branch with the required details.
4. Pledge your asset: The pledge is executed—either electronically through a depository system (for shares/mutual funds) or via physical documentation (for gold/insurance).
5. Verification: The lender checks the ownership and value of the pledged asset.
6. Approval: Once approved, the sanctioned loan amount is disbursed to your bank account.

This entire process may take a few hours to a couple of days, depending on the asset type.

Eligibility and documentation vary slightly by lender and loan type, but the following are common requirements:

Eligibility criteria:

• Applicant must be an Indian resident.
• Age typically between 18 and 70 years.
• Must legally own the asset being pledged.
• Acceptable assets: shares, mutual funds, or eligible insurance policies.

Required documents:

• PAN 
• Any one of the officially valid documents: Aadhaar, Passport, Driving License, Voter ID, NREGA Job Card, Letter issued by the National Population Register.
• Banking documents: Recent bank statements or income proof if required.
• Asset ownership proof: Demat account statement, FD receipt, or insurance policy document.

Conclusion

A pledge loan is a practical way to bridge financial gaps without giving up ownership of your valuable assets. It is cost-effective, flexible, and provides quick liquidity when you need it most. However, like all credit products, it comes with responsibilities. Timely repayment is essential to safeguard your pledged asset. Whether you are a salaried professional, business owner, or investor, pledge loans can serve as an efficient financial tool in emergencies or for planned expenses. By choosing wisely, you can benefit from liquidity without compromising long-term goals.

Apply for a loan against securities now and unlock quick funds while retaining ownership of your investments or insurance policies.