Investing in the bonds lets individuals earn regularly at a secure interest rate. However, they need to stay invested for a certain period to get the desired returns. So, in case of financial emergencies, individuals may prefer availing a loan by pledging bonds rather than liquidating them to meet their financial needs. The loan against bonds comes with easy-to-meet eligibility criteria and an affordable interest rate because of its secured nature.
What happens in a loan against bonds?
In a loan against bonds, individuals need to submit the invested bonds as collateral with the lending institution. They can borrow up to a certain percentage of the bond’s valuation as per discretion of a lender. In other words, lenders determine a certain credit limit considering the value of the bonds proposed to be pledged. Individuals can borrow less than or equal to that credit limit as per their requirements.
Borrowers need to repay the loan within a certain time frame as stipulated by a lender.
Why should individuals avail of a loan against bonds?
Here are the benefits individuals can secure by availing loan against bonds:
- Substantial credit amount: Individuals can get a substantial credit amount through the loan against bonds. The amount of credit facility mainly depends on the valuation of their bonds as decided by a lender.
- Easy repayment: Borrowers need to repay only the amount they utilise from their given credit limit. Apart from this, they get a flexible tenure to repay the loan as stipulated by a lender.
- End-usage restriction-free credit: Individuals can use the credit borrowed from a loan against bonds freely. They can leverage the amount to meet personal or professional expenses at their discretion.
- No impact on returns on bond: Individuals can release their bonds after completing the repayment of the loan. This way, they can keep the benefit of their bonds intact. Subject to complete repayment of the loan, they will be able to get the maturity value of their bond on the due date.
- Loan-to-value ratio: The loan-to-value ratio for this credit facility generally stays around 50% (subject to changes and discretion of a lender). As a result, individuals can borrow up to 50% of the market valuation of their bonds.
In this regard, individuals can borrow against bonds from Bajaj Finance Limited to enjoy a higher loan-to-value ratio. Intending borrowers can get a loan for up to 95% of the current valuation of their bonds subject to discretion of Bajaj Finance Limited.
Who can take the loan against bonds?
For availing loan against bonds from Bajaj Finance Limited, following are the eligibility requirements individuals need to meet to qualify for a loan against bonds:
- They need to be citizens of India.
- Their age should be within the range of 18 to 90 years.
- The minimum value of their mortgaged bonds or security should be Rs. 50,000.
- Both self-employed and salaried individuals can leverage this credit facility.
- Any other condition, criteria as may be stipulated by Bajaj Finance Limited.
Is CIBIL Score necessary to take the loan against bonds?
In secured loans like loans against bonds, lenders generally do not determine CIBIL Score as one of the parameters of eligibility criteria. However, they may check the credit score of their applicants to ensure they are credible borrowers and will repay the debt responsibly. Therefore, individuals with high credit scores can get credit against securities more easily.
What are the charges applicable in a loan against a bond?
Individuals need to pay different charges in a loan against bonds. as follows, which are inclusive but not limited to:
- Processing fees
- Prepayment charges
- DP charge
- Brokerage
- Bounce charges
- Penal interest
- Stamp duty
- Foreclosure charges
- Pledge confirmation and innovation charges
Apart from the interest rate, individuals need to check the charges and ensure that it is lower compared to other lenders. This will help them ensure that their cost of borrowing is low.
For whom would a loan against bonds be ideal?
Loans against bonds would be preferable for individuals who do not intend to take unsecured credit like business loans or personal loans. Unsecured loans come with a high-interest rate and can thereby significantly increase the borrowing cost.
Furthermore, there may be individuals who do not have residential or commercial properties to collateralise and take conventional loans against properties. If such individuals have investments in bonds, they can go with this loan against security to secure a high-ticket credit.
Do individuals need to provide interest on the total approved loan?
Total approved loan refers to the highest amount that individuals can borrow. Lenders determine this credit limit after appraising the value of bond which is pledged in favour of a lender to secure the loan. Borrowers may or may not utilise the full amount from the loan. They will have to provide the interest only for the amount they utilise, not on the total approved loan amount. During financial needs, individuals may face a short-term crisis of finance. For this, it may not be desirable for them to liquidate their investment. Rather, if possible, they can apply for a loan against the bond to meet their immediate fund shortage.
