How Loan Against Bonds Works

When you take out a loan against bonds, you're essentially using your bonds as collateral to secure a loan. The process typically involves pledging your bonds to a financial institution in exchange for a loan amount, which is determined based on the value of the bonds. The loan amount is usually a percentage of the current market value of the bonds, known as the loan-to-value (LTV) ratio. The interest rates for such loans are generally lower compared to unsecured loans because the bonds provide security for the lender.

The interest rate can be fixed or variable, depending on the lender and the terms of the loan. You'll need to repay the loan amount along with the interest within the agreed tenure, which can range from a few months to a few years. If you fail to repay the loan, the lender has the right to sell the bonds to recover the loan amount. While the bonds are pledged, you usually retain ownership and continue to receive any interest payments or benefits associated with the bonds.