What Are the Interest Rates and Terms for a Loan Against Bonds?

Interest rates refer to the cost of securing financing as a loan.  Interest rates for loans against bonds typically range between 8% and 20% annually, depending on factors like bond type, rating of the issuer, and existing market conditions.

Government or high-rated corporate bonds often attract lower interest rates due to their low-risk profile. Conversely, loans secured by lower-rated bonds may have higher interest rates to offset the loan provider’s risk.

Key terms for loan against bonds include the following:

• Loan Tenure: Typically aligned with the maturity period of the pledged bonds, loan tenures can range from a few months to a few years.
• Repayment Flexibility: Depending on the agreement, borrowers usually have options for EMI payments or bullet repayments.
• Processing Fees: A nominal fee (usually 0.5%–5% of the loan amount) may be charged during loan processing.
• Prepayment Penalty: Most loan providers offer flexible prepayment facilities. They usually charge a minimal amount for early repayment.

Understanding the interest rates and terms can ensure that the applicant can choose a loan against bonds that aligns with their financial needs and preserves their investment strategy.