A Complete Overview of Loan Against Shares
If you need quick funds but don’t want to sell your shares, you can borrow using your demat shares as collateral. You retain your shares and market exposure, making this a suitable way to meet financial needs without impacting long-term investments.
What Is a Loan Against Shares?
A loan against shares (LAS) lets you borrow by pledging your listed shares as collateral. Banks, NBFCs, and financial institutions offer secured loans, holding your shares until repayment. This type of loan is ideal for investors who need liquidity but don’t want to sell their equity holdings.
The biggest advantage is that you can unlock the value of your shares while continuing to benefit from potential market growth. You still remain the owner of your investments, and dividends or bonuses (if applicable) may continue to accrue to you, depending on the lender’s policy.
What Are the Key Benefits of Loan Against Shares?
Taking out a loan against shares comes with multiple advantages for investors and traders alike. Let’s look at the main benefits.
1. Retain Ownership of Your Shares
Your shares continue to remain in your demat account and can appreciate in value while being pledged. Since you’re not selling them, you avoid losing out on future market gains. This allows you to meet your short-term funding requirements without interrupting your long-term wealth creation goals.
2. Lower Interest Rates
Loans against shares typically come at lower interest rates compared to unsecured loans like personal loans or credit cards. Since your equity holdings serve as security, lenders face reduced risk and pass on the benefit in the form of competitive rates.
3. Flexible Loan Limits
The loan amount depends on the market value of your shares and the lender’s loan-to-value (LTV) ratio, generally up to 50-60% of the share’s current market value. Some lenders also set different limits based on the type of shares and their liquidity. This flexibility allows you to borrow according to your needs.
4. Minimal Impact on Credit Score
Because your shares serve as collateral, lenders feel more secure, and approvals are faster. Timely repayments may even strengthen your credit score. As long as the loan is serviced on time, it has a positive impact on your credit history.
5. Fast and Convenient Access to Funds
The entire process of availing a loan against shares can be completed online in just a few steps. With minimal documentation and instant verification, funds are often disbursed within hours, making it an excellent choice for emergency or business-related cash needs.
6. Multi-Purpose Use of Funds
There are no restrictions on how you use the money. Whether it’s for business expansion, home renovation, education, medical expenses, or meeting short-term obligations, the loan against shares offers complete financial flexibility.
Application Process for Loan Against Shares
Applying for a loan against shares has become quick and paperless thanks to digital lending platforms. Here’s the typical process:
Step 1: Log in to your bank or NBFC’s online portal to start your loan application.
Step 2: You’ll receive an OTP on your registered mobile number for verification and consent.
Step 3: Enter your personal details, PAN, and demat account information.
Step 4: Select the shares you wish to pledge and the loan amount you want to apply for.
Step 5: Upload identity proof and bank details for the credit of funds.
Step 6: Once the lender places a lien on your shares and completes verification, the approved loan amount is credited directly to your account.
Features of Loan Against Shares
Here are some key features that make a loan against shares an attractive borrowing option:
Quick Disbursal: Funds are credited to your account within hours of approval.
Wide Coverage: You can pledge shares of listed companies held in your demat account.
Ownership Retention: Your shares remain yours; only a lien is marked against them.
Open for New Borrowers: Even if you don’t have a borrowing history, you can still apply.
Pay Only for What You Use: Interest is charged only on the amount utilized, not the total sanctioned limit.
No End-Use Restriction: You’re free to use the funds for any legitimate financial purpose.
Conclusion
A loan against shares is a smart and efficient way to access liquidity without selling your equity holdings. It combines flexibility, speed, and cost-effectiveness, allowing you to meet urgent financial needs while keeping your long-term investments intact. With lower interest rates, easy digital processing, and the ability to continue participating in market growth, a loan against shares can be an ideal financial bridge during emergencies or new opportunities.
FAQs
1. What are the benefits of taking a loan against shares?
You can access funds quickly without selling your shares and continue to benefit from potential price appreciation. Interest rates are also typically lower than personal loans.
2. How is the loan amount determined?
The loan amount depends on the market value of your pledged shares, the lender’s LTV ratio (usually 50–60%), and your repayment capacity.
3. Can I use any shares to secure a loan?
Lenders generally accept only listed shares from approved companies. Illiquid or unlisted shares are usually not accepted as collateral.
4. How long does it take to get approved for a loan against shares?
If you submit all required documents online, approval can be completed within a few hours to a couple of business days.
5. Do I have to submit physical documents?
In most cases, the process is fully digital. You only need to e-sign and link your demat account electronically.
6. Can I still receive dividends and bonuses while my shares are pledged?
Yes, you will continue to receive dividends and bonuses, though some lenders may hold them until repayment is completed.
7. How do interest rates on loans against shares compare with other loans?
They are generally lower than unsecured loans since shares serve as collateral, but slightly higher than secured home or vehicle loans.
8. What should I consider before taking a loan against shares?
You should assess your repayment ability and understand the risk of liquidation — if share prices fall significantly, the lender may sell pledged shares to recover dues.