Is Taking a Loan Against Shares Really Worth It?

When you need extra money, there are plenty of borrowing options out there. One option that’s becoming popular in India is taking a loan against your shares. But is it really a good idea? Is it safe to pledge your shares to get a loan? 

Let's explore loan against shares and loan against stocks — how they work, their benefits, and risks.

What is a Loan Against Shares?

A loan against shares is a type of secured loan where you use your shares or stocks as collateral. Usually, banks or financial companies give you this loan. Instead of selling your shares, you pledge them and get a loan amount that’s a percentage of their current market value. This way, you get your cash without letting go of your investments.

How Does Loan Against Shares Work?

For a loan against shares in India, the bank checks how much your shares are worth. Then they can decide on how much loan to give you. Usually, they give a loan of between 50% to 75% of the value of your shares. 

Your shares stay with the bank until you repay the loan. The interest rates can also be lower than unsecured loans. Plus, repayment terms can be from a few months to several years.

Why Should You Consider a Loan Against Shares?

Here are some benefits of why a loan against stocks is a smart and convenient choice for you:

1. Quick Access to Cash

Since the lender already has your shares as security, approvals and disbursals tend to be faster than other loans.

2. Lower Interest Rates

Because your shares secure the loan, lenders offer comparatively lower interest rates. This makes it an economical option if you need funds.

3. Retain Ownership and Benefits

Unlike selling shares, pledging them lets you retain ownership and benefit from any dividends or capital appreciation. You can recover your shares once you repay the loan.

4. Flexible Repayment

Many lenders let you choose how you want to repay. It can be in installments or a lump sum when the loan matures.

What Are the Risks of Getting a Loan Against Your Shares?

These are some of the risks to consider:

1. Market Volatility

Your share values can go down. If the fall is high, the bank can ask you to provide more collateral. Or they can even ask you to repay a part of the loan. This is called a margin call.

2. Risk of Forced Sale

If you fail to repay the loan, the bank can sell your pledged shares to recover its money. This could mean you can lose your investments and future gains.

3. Eligibility and Limits

You can’t pledge just any shares. Only certain types of shares qualify for this kind of loan. Lenders usually prefer well-established, high-value stocks that are easy to buy and sell. The loan amount is limited to a percentage of the share value.

4. Extra Charges

Apart from the interest, there can be various other costs. It is important to review the full cost before you commit to the loan.

Who Should Think About Taking a Loan Against Shares?

If you need money quickly but don’t want to sell your shares, a loan against shares might be a good fit. It’s ideal for:

• Entrepreneurs need working capital fast.

• Investors who want emergency funds without selling assets.

• Anyone looking for a loan with lower interest than a personal loan.

But if your shares are volatile or low-value, or if you’re unsure about repaying soon, it might not be the best choice.

How to Apply for a Loan Against Shares in India?

Applying is straightforward:

• Choose a lender – banks or NBFCs offering loans against shares.

• Submit KYC documents and shareholding details.

• The lender evaluates the shares and decides the LTV.

• Complete the loan application and agree to the terms.

• Shares are pledged electronically, and the loan amount is disbursed.

At My Mudra, we can help you connect with trusted lenders offering competitive rates for loan against shares in India.

Summing Up

Taking a loan against shares can be a smart way to access funds quickly at lower interest rates. However, understanding the risks is also important. To avoid these, you can consider talking to a financial advisor before you pledge your shares. They can help you check your ability to repay.

If you want to explore your loan options with confidence, let My Mudra, one of the top fintech companies, help you. We offer a simple, reliable platform to apply for various loans, including loans against shares in India. Connect with us today and take the next step in your financial journey.

Also Read:
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