Loan Against Bonds: Key Rates & Costs Explained

You don’t always have to sell your bonds to get access to cash. In India, you can use them as collateral and take a loan against your bond holdings from a bank or NBFC. This way, you unlock quick funds while your bonds remain invested and continue earning interest. It’s a smart way to manage urgent needs without breaking your long-term investments. 

However, before applying, make sure you understand the interest rates, charges, and loan terms so there are no surprises later.

Key Takeaways

• Loan against bonds allows you to borrow without liquidating your investments.
• Interest rates vary by lender, borrower profile, and type of bonds pledged.
• Charges like processing fees and prepayment penalties can affect overall cost.

What does a loan against bonds mean?

A loan against bonds is a type of secured loan where you pledge your bond investments as collateral. Instead of selling your bonds in the market, you borrow against their value.

• Collateralized Borrowing: Your bonds remain in your name, but are temporarily held by the lender until the loan is repaid.
• Liquidity with Safety: You get funds without disrupting your long-term portfolio.
• Flexible Usage: Borrowed money can be used for personal or business needs, except for speculative trading.

What interest rates can I expect on loans against bonds?

The interest rate is the biggest cost factor for borrowers. In India, loan against bonds typically carry rates in the range of 9% to 14% p.a., depending on:

• Type of Bonds: Government bonds often attract lower rates compared to corporate bonds.
• Credit Profile: Higher credit scores can lead to lower borrowing costs.
• Lender’s Policy: NBFCs may offer more flexible terms than banks.

Example: If you pledge high-rated PSU bonds, you might get a rate closer to 9–10%. For lower-rated corporate bonds, expect higher interest.

You can check personalized rates using Quicklend’s Loan Calculators.

What other costs are involved besides interest?

While interest is the primary cost, several additional charges can impact the effective borrowing cost:

• Processing Fees: Usually 0.5% to 2% of loan amount.
• Valuation Charges: For assessing the current market value of pledged bonds.
• Prepayment / Foreclosure Charges: Some lenders impose a small fee if you repay early.
• Stamp Duty / Legal Charges: Applicable in certain states or for higher loan amounts.

Always review the loan agreement carefully. Transparency on costs is key to avoiding unpleasant surprises.

How much can I borrow against my bonds?

Lenders apply a Loan-to-Value (LTV) ratio, which defines how much of your bond value can be borrowed.

• Typical LTV for bonds: 50% to 70% of market value.
• Example: If you hold bonds worth ₹10 lakh, you may be eligible for a loan of ₹5–7 lakh.
• Regular monitoring: If bond prices fall, lenders may ask for additional margin or partial repayment.

When does it make sense to take a loan against bonds?

You may consider this option when:

• You need liquidity but don’t want to sell long-term investments.
• The interest rate on loans against bonds is lower than alternatives like personal loans or credit cards.
• You want to meet short-term expenses such as education, medical bills, or business working capital.

Conclusion

A loan against bonds lets you access funds without disturbing your long-term investments. By pledging your bonds, you can get quick liquidity while still earning interest on them. But remember, the actual cost of borrowing isn’t limited to just the interest rate — it also includes fees like processing charges, foreclosure costs, and prepayment penalties. So it’s important to factor these in before applying.