Why Choose Sulekha?
Sulekha is your go-to platform for finding a wide variety of loan providers catering to diverse financial needs such as personal loans, car loans, Loan Against Shares, vehicle loans, mortgage loans, education loans, and more. With Sulekha, you gain access to a comprehensive network of reputable lenders, ensuring you find the perfect match for your specific requirements. The platform simplifies your search process, saving you time and effort by connecting you with trusted professionals who can offer tailored loan solutions. Choose Sulekha for a seamless and efficient loan-seeking experience.
1. When to Consider Taking Out a Loan Against Shares?
- Need for Immediate Liquidity Without Selling Shares: If you need immediate funds but don't want to sell your shares because you believe they will appreciate in value, a loan against shares can provide the necessary liquidity. This allows you to meet urgent financial needs while retaining your investment.
- Leveraging Investment Opportunities: When you identify a high-potential investment opportunity and lack sufficient liquid funds, taking a loan against your shares can provide the capital needed to invest. This approach can amplify your returns if the new investment performs well.
- Avoiding Capital Gains Tax: Selling shares can trigger capital gains tax, particularly if the shares have appreciated significantly. By taking a loan against your shares instead of selling them, you can avoid or defer this tax liability.
- Diversifying Your Portfolio: If your portfolio is heavily concentrated in a particular stock or sector, a loan against shares can provide funds to diversify your investments without needing to sell your existing holdings.
- Lower Interest Rates: Loans against shares often come with lower interest rates compared to unsecured loans or credit cards because the shares serve as collateral. This can be a cost-effective borrowing option for funding various needs.
- Meeting Personal or Business Expenses: For significant personal expenses (such as home renovations, education, or medical emergencies) or business needs (such as expansion or working capital), a loan against shares can be a viable option to access funds without disrupting your investment portfolio.
- Short-Term Financial Needs: If you have a short-term financial requirement and expect to repay the loan quickly, using shares as collateral can be an efficient way to bridge the gap without long-term financial commitments.
2. Eligibility Criteria for Taking a Loan Against Shares
- Ownership and Type of Shares: Only approved and listed shares on major stock exchanges are eligible, with a preference for shares held in demat form. The applicant must be the legitimate owner of these shares, ensuring the shares are not encumbered.
- Demographics: Applicants should typically be between 18 and 65 years of age. Both residents and non-residents (NRIs) can apply, though the criteria for NRIs might differ based on the lender's policies.
- Financial Criteria: A good credit score, usually above 700, is important to demonstrate creditworthiness. Applicants should have a regular income source, whether from a salary, business, or other means, and a manageable debt-to-income ratio is preferred.
- Documentation: Essential documents include proof of identity (e.g., Aadhar card, passport), proof of address (e.g., utility bill, rental agreement), bank statements, salary slips or income tax returns, and a demat account statement showing the shareholding pattern.
- Value of Shares: The market value of the shares should be sufficient to cover the loan amount, typically 50-75% of the current market value. Shares in a diversified portfolio of blue-chip companies are preferred due to their stability and lower volatility.
- Loan Specific Criteria: Minimum and maximum loan amounts vary by lender, and a margin requirement is typically set to safeguard against market fluctuations. This margin is the difference between the share value and the loan amount.
- Lender-Specific Policies: Each financial institution may have its own set of rules and eligibility criteria. Existing customers with a good relationship with the bank may receive more favorable terms and conditions.
- Other Considerations: Lenders may review the performance history of the pledged stocks and prefer stocks from a diversified and stable portfolio. The applicant’s relationship with the bank can also influence loan terms.
3. What are the Benefits and Advantages of a Loan Against Shares?
- Liquidity without Selling Investments: A Loan Against Shares provides quick access to funds without the need to sell your investments, allowing you to retain ownership and benefit from any future appreciation or dividends.
- Lower Interest Rates: As a secured loan backed by shares as collateral, it generally offers lower interest rates compared to unsecured loans, making it a cost-effective borrowing option.
- Flexible Usage: The funds obtained from a Loan Against Shares can be used for various purposes such as business expansion, personal expenses, emergencies, or other investments, providing great flexibility.
- Tax Benefits: In some jurisdictions, the interest paid on the loan might be tax-deductible if the funds are used for investment purposes, offering potential tax savings.
- Credit Score Impact: Since it’s a secured loan, it might have a lesser impact on your credit score compared to unsecured loans, provided timely repayments are made, helping maintain a healthy credit profile.
- Higher Loan Amounts: Typically, higher loan amounts can be availed compared to other secured loans due to the high liquidity of shares, providing more significant financial leverage.
- Flexible Repayment Options: Lenders often offer flexible repayment options, including the possibility to pay only the interest during the loan tenure and repay the principal amount at the end.
- No Asset Transfer: Shares are pledged, not transferred, so the borrower retains voting rights and ownership benefits, continuing to enjoy the advantages of share ownership.
- Quick Processing: Loans against shares are often processed quickly, especially if the shares are in demat form, making it a convenient option for immediate financial needs.
- Diversification of Financial Strategy: By borrowing against shares, investors can diversify their financial strategies, utilizing their equity portfolio without altering their long-term investment plans.
- Retain Potential Upside: As you still own the shares, you can benefit from any market gains during the loan period, allowing for potential appreciation while accessing necessary funds.
4. Important Factors to Consider When Taking a Loan Against Shares
- Loan-to-Value (LTV) Ratio: The LTV ratio determines how much you can borrow against the value of your shares. Typically, lenders offer 50-70% of the market value of the shares as a loan. Ensure you understand the LTV ratio offered and how it impacts your borrowing capacity.
- Interest Rates: Interest rates on loans against shares can vary significantly between lenders. Compare rates from different institutions to find the most competitive rate. Also, consider whether the rate is fixed or variable, as this will affect your monthly payments.
- Collateral Requirements: Your shares will be held as collateral by the lender. Ensure you understand the terms under which your shares are pledged, including any limitations on trading or accessing your shares during the loan period.
- Repayment Terms: Examine the loan repayment terms, including the tenure, repayment schedule, and any penalties for early repayment. Ensure the terms align with your cash flow and financial planning.
- Margin Calls: A significant risk with LAS is the possibility of a margin call if the value of your shares drops below a certain level. Understand the lender's margin call policies and have a plan in place to manage this risk, such as maintaining additional collateral or having funds available to meet margin calls.
- Market Volatility: The value of your shares can fluctuate with market conditions. Assess your risk tolerance and consider the potential impact of market volatility on your ability to maintain the required collateral value.
- Tax Implications: Interest paid on a loan against shares may be tax-deductible in certain jurisdictions. Consult with a tax advisor to understand the tax implications and benefits in your specific situation.
- Purpose of the Loan: Clearly define the purpose of taking the loan. Ensure that the loan aligns with your financial goals, whether it's for personal use, investing in new opportunities, or managing liquidity needs.
- Credit Score: Lenders will consider your credit score when approving a loan against shares. A higher credit score can result in better loan terms. Check your credit score and take steps to improve it if necessary before applying for the loan.
- Lender's Reputation and Terms: Research the lender's reputation, customer service, and specific terms and conditions. Choose a reputable lender with favorable terms to avoid any potential issues during the loan tenure.
- Exit Strategy: Have a clear exit strategy for repaying the loan. Consider the sources of funds you will use to repay the loan and any contingencies in case your financial situation changes.
5. Loan Against Shares Interest Rates?
Loan Against Shares Interest Rates
| Bank Name |
Interest Rate (per annum) |
Processing Fee |
Loan Amount |
| HDFC Bank |
9.50% - 11.50% |
0.50% of loan amount |
₹50,000 to ₹20,00,000 |
| ICICI Bank |
10.00% - 12.00% |
0.75% of loan amount |
₹50,000 to ₹20,00,000 |
| State Bank of India |
9.00% - 10.75% |
0.50% of loan amount |
₹50,000 to ₹10,00,000 |
| Axis Bank |
9.75% - 11.75% |
1% of loan amount |
₹50,000 to ₹20,00,000 |
| Kotak Mahindra Bank |
10.25% - 12.50% |
0.50% of loan amount |
₹1,00,000 to ₹20,00,000 |
| Bank of Baroda |
9.25% - 11.50% |
1% of loan amount |
₹50,000 to ₹20,00,000 |
| Punjab National Bank |
9.75% - 11.75% |
0.75% of loan amount |
₹50,000 to ₹20,00,000 |
| IndusInd Bank |
10.00% - 12.50% |
1% of loan amount |
₹50,000 to ₹25,00,000 |
Please note: Interest rates and fees can vary based on the loan amount, tenure, credit profile of the borrower, and specific bank policies. It is advisable to check with the respective bank for the most accurate and updated information.
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