Loan against shares is a type of credit available against listed shares. Here, investors borrow funds against investment portfolios in shares to meet their financial needs. On the other hand, loan against bonds enable individuals to finance their needs by pledging bonds such as treasury bills, municipal bonds, zero-coupon bonds, etc. This article provides an insight into the difference between a loan against shares and a loan against bonds.
How are a loan against shares and a loan against bonds different?
To get a thorough understanding of loan against shares vs. loan against bonds, here is a look at their differences:
● Security
Since both loans are secured in nature, they require collateral against loan sanctioned. However, the collateral pledged in both cases is different. In the case of a loan against shares, borrowers need to pledge their existing shares as collateral. On the other hand, for loan against bonds, they need to collateralise their existing bonds.
● Loan to value ratio
Borrowers can typically obtain a loan against shares with an LTV ratio of up to 50%. This means they can borrow up to 50% of the current market value of the shares they pledge as collateral.
In contrast, loans against bonds typically have a higher LTV ratio, often up to 95%. This means borrowers can borrow up to 95% of the value of bonds they pledge as collateral.
What are the advantages of a loan against shares and a loan against bonds?
Some of the common benefits one can get from a loan against shares and a loan against bonds are discussed below:
- Secured loan: Loan against shares and loan against bonds are secured credit facilities, so borrower to collateralise their assets in bonds and shares for availing such loan facilities.
- Easy availability: Both these credit instruments are known for their convenience and easy accessibility alongside quick processing.
- Loan value: The lending institution provides a loan amount as per the value of security pledged by the borrower. Loan against securities is a type of overdraft facility wherein the sanctioned overdraft amount generally ranges between 40% and 50% of the collateralised property’s worth.
- Repayment schedule: In the case of loan against securities, it allows a more flexible schedule for repayment than other kinds of instalment -based credit facilities.
- Tenure: When it comes to loan against shares and loan against bonds, most lenders provide a tenure of one year on average, which can be extended by paying some additional charges, at the sole discretion of the lender.
- Reasonable interest rate: The rate of interest charged on loan against securities is lower than other types of loans.
- Documentation: If an individual is looking for loans with less paperwork, then choosing loan against securities will be ideal. Besides minimal documentation, these also have an easy application procedure and minimal processing charges. However, this shall be at sole discretion of each lender.
- Online application: Due to the Bajaj Finance Limited’s online application process, anyone can easily avail of loan against securities anytime.
- Benefits and perks: Another beneficial factor that makes a loan against securities unique is that it allows individuals to avail several benefits and perks attached with securities like bonuses on investments, dividends, etc. will the securities are pledged with lenders.
- No end-use restriction: Like personal loans, applicants can utilise the credit against securities for any kind of purpose permitted by relevant law. This means that a borrower can use the credit amount to buy a house, settle an outstanding debt, tackle a medical emergency, or make any other expenditure.
While there are some differences between a loan against shares and a loan against bonds, several things are also common. However, like other types of loans, the terms and conditions for a loan against securities also vary from one lender to another. Thus, to pursue these types of loans, borrowers need to conduct thorough market research and make decisions prudently.
