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Taking a loan against security is better than selling off your investments in some cases. While your security is with the lender, it can continue to grow.

Take stocks as an example. If these stocks are part of your long-term holding, you can continue to get dividends while they are pledged with the lender.

According to HDFC Bank’s website, you can get a loan against multiple securities. But the amount lender will give you against the security varies.

For equity shares and mutual funds, HDFC Bank offers 50% of the present value of the loan. A borrower can get 80% against the net asset value (NAV) of a debt fund and life insurance policies. Against National Savings Certificate, Kisan Vikas Patra and non-convertible debentures, borrowers can get up to 70% of present value.

Most lenders typically lend against at least two shares
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Most lenders typically lend against at least two shares

If you don’t withdraw all the money offered as a loan, the bank will charge interest on the amount that borrowers use.

Most lenders typically lend against at least two shares. But some can also give a loan against a single share. But they need to be part of the bank’s approved list. Kotak Mahindra Bank, for example, has a list of 749 stocks against which it lends.

Check it here.

The interest rates for loans against securities range anywhere from 7.8% to 18%, according to data from Paisabazaar.com. Some lenders have a minimum amount of loan that you can take. HDFC Bank requires borrowers to apply for at least 1 lakh, which means the borrower will need to pledge at least 2 lakh worth of stocks or equity mutual funds, according to its website. State Bank of India offers a minimum loan of 50,000.

The processing fee for loan against security is usually lower compared to other loans. Canara Bank, for example, charges 0.1%. Tata Capital charges up to 1% of the loan amount.

(Do you have personal finance queries? Send them to mintmoney@livemint.com and get them answered by industry experts)

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