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Loans Against Shares: Meaning, Benefits, Alternatives, How to Apply

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Created on
October 6, 2023


What’s Inside

You could be wrong if you thought borrowing money in India was possible only via a personal loan. If you’ve invested in any assets, you can also pledge those with a financial institution (if they’re eligible) and borrow funds in return. Equity stocks are among the various investments that may qualify for such secured credit facilities. By pledging eligible stocks, you can avail of a loan against shares and manage financial contingencies easily. 

In this blog, let’s discover what loans against shares are, how they work, and the benefits and application process. 

Loans Against Shares: What Are They 

Loans against shares are secured borrowings that many leading banks and financial institutions offer. These loans are disbursed to borrowers who offer eligible equity investments as collateral to the lender. Since equity stocks are volatile investments, the criteria to determine which stocks qualify as collateral can be quite stringent. 

How Do Loans Against Shares Work?

If the shares you invested in qualify, you can obtain a loan against those stocks. When you pledge the shares as collateral, the lender obtains a lien on those investments during the repayment tenure. If you default on your loan repayment, the lender has the right to redeem your investments and benefit from the sale proceeds instead. 

Benefits of Loans Against Shares

By choosing to avail of a loan against shares to meet your emergency financial requirements, you also stand to gain in many other ways. The top benefits of this credit facility include the following:

  • Immediate liquidity and cash availability, making it easy to manage your financial needs
  • Continued benefit from potential appreciation in the value of shares pledged
  • More competitive interest rates since loans against shares are secured borrowings
  • Flexible end use of funds disbursed without any restrictions 
  • Continue benefits of dividend income as long as you repay your EMIs on time

How to Apply for a Loan Against Shares?

The exact process to apply for a loan against stocks may vary from one lender to another. However, the steps typically involved in the process are as follows.

Step 1: Identify banks and financial institutions that offer loans against shares. 

Step 2: Check if your shares qualify for the credit facility. 

Step 3: If they do, fill out the loan application form and submit it along with the KYC documents.

Step 4: You must also submit documentation offering the lender a lien on your shares.

Step 5: The lender will then scrutinise your application and approve it if you qualify.

Step 6: You will then receive the funds in your account. 

Alternative Securities You Can Consider for a Loan 

In case your portfolio does not include eligible equity shares, you will not be able to obtain a loan against shares. However, before you hastily sell your investments to obtain liquid funds, consider the following alternatives.

1. Gold Loans

Like loans against shares, gold loans are also secured loans. If you own gold in the form of bullion or jewellery, you can pledge those assets to borrow money via a gold loan. 

2. Instant Loans

Instant loans are pre-approved credit facilities that banks may offer individuals with high credit scores. These loans are disbursed almost instantly since you don’t need to apply for them.

3. Loans against Fixed Deposits

Some banks offer overdraft facilities against fixed deposits. If you have an FD with the bank, you can check your eligibility and apply for this facility if you qualify. 

4. Loans Against Insurance

You can obtain a loan against your life insurance policy too. This loan is typically offered by insurance providers themselves. 

Summing Up

To sum it up, if you require funds to meet a financial emergency and if you have invested in equity shares, a loan against shares may be a suitable option to consider. Before you apply, ensure that you have the financial capacity to repay the loan. Otherwise, your shares will be sold by the lender to compensate for the unpaid loan balance, if any. 

Broaden Your Investment Horizon Across Borders with Fi Money

Investing in eligible Indian stocks may make it easier to obtain a loan against shares. However, it’s also crucial to diversify your portfolio to include international stocks. Fi enables you to invest in top US companies — at industry-best forex rates. So you can own shares in Apple, Tesla, Microsoft, and so on! With an intuitive user interface, Fi simplifies the world of US Stocks alongside their FINRA-regulated broker partner, Alpaca Securities. Besides in-app explainers, novice investors can use Curated Collections (like All-Time Favourites) to make decisions.

Frequently Asked Questions

1. What is a loan against shares, and how does it work?

A loan against shares is a credit facility where you pledge shares to borrow money. The shares act as collateral for the loan. 

2. Are there any risks associated with taking a loan against shares?

Yes, some risks associated with loans against shares include share price volatility, potential margin calls and the risk of losing your shares if you fail to repay the loan. 

3. What are the advantages of using shares as collateral for a loan?

The advantages of using shares as collateral for a loan include easy liquidity without the need for selling the asset and potentially competitive loan interest rates. 

4. How can I determine the loan-to-value ratio for my shares?

To calculate the loan-to-value ratio when you avail of a loan against stocks, divide the amount of the loan by the market value of the shares pledged. 

5. What happens if I can't repay the loan against my shares?

If you fail to repay the loan against your shares, the lender will typically sell the shares pledged and utilise the sale proceeds to compensate for the default.


Fi Money is not a bank; it offers banking services through licensed partners and investment services through epiFi Wealth Pvt. Ltd. and its partners. This post is for information only and is not professional financial advice.
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