A Guide to Repaying Your Loan Against Securities
A Loan Against Securities (LAS) does not follow the same repayment structure as a personal loan or a home loan. There are no fixed monthly EMIs covering both principal and interest. Instead, it operates as a revolving credit line: monthly interest on the outstanding balance is automatically debited, and the principal is repaid at the borrower’s discretion over the 36-month tenure.
This article explains how repayment works on smallcase, covering monthly interest payments, principal repayment, credit limit restoration, missed payments, margin call resolution, and the loan closure process.
How Loan Against Securities Repayment Work?
A LAS on smallcase is structured as a revolving overdraft facility. The repayment structure has two distinct components that operate independently:
Monthly Interest Payment
Interest is calculated on the principal amount currently outstanding, the amount drawn from the credit line, not the full sanctioned limit. This is auto-debited from the linked bank account on the due date via the e-mandate set up at the time of application. No manual action is required for the monthly interest debit.
Principal Repayment
There is no fixed schedule for repaying the principal. It can be repaid in full or in part at any time during the 36-month term, with no prepayment or foreclosure charges. The principal is not auto-debited; it is initiated by the borrower from the loan dashboard.
The monthly obligation on a LAS is limited to the interest on the outstanding balance. Principal repayment does not follow a fixed schedule and is initiated as and when the borrower chooses, within the tenure.
How to Apply for a Loan Against Securities on smallcase?
- Log in to smallcase Credit: Visit smallcase Credit and click on ‘Loan Against Mutual Funds’ or ‘Loan Against Stocks’ to check your credit limit.
- Check eligible stocks: View your Zerodha demat holdings and see which stocks and ETFs are available for pledging.
- Select stocks to pledge: Choose the securities you want to use as collateral and confirm your credit limit.
- Link your bank account: Add your bank details for disbursement and set up an e-mandate for monthly interest auto-debit.
- Pledge your stocks: Selected shares are lien-marked through the depository while remaining in your Zerodha demat account.
- Sign the loan agreement: Review the terms, verify with OTP, and sign the agreement online.
- Receive the loan amount: The amount is credited directly to your linked bank account after signing.
How is Monthly Interest Calculated?
Interest on a LAS is calculated on the daily outstanding principal balance and billed monthly. For a full breakdown of applicable interest rate and fees, refer to the fee schedule before applying. The calculation formula is:
Interest = Outstanding Principal × (Annual Rate ÷ 365) × Number of Days
For example, if the outstanding principal is ₹1,00,000 at 10.25% p.a. for a 30-day month:
Interest = ₹1,00,000 × (10.25 ÷ 365) × 30 = ₹842
The following points explain how interest accrual works in practice:
Interest Accrues only on the Drawn Amount
If the sanctioned credit limit is ₹5 lakh but only ₹1 lakh has been drawn, interest is charged on ₹1 lakh alone. The unutilised portion of the credit line does not attract any interest or charges.
Interest Adjusts when Principal is Repaid
When a portion of the outstanding principal is repaid, the interest accruing from that date reduces in proportion to the reduction in outstanding balance. The revised interest is reflected in the next billing cycle.
Interest is Auto-Debited on the Due Date
The monthly interest amount is automatically deducted from the linked bank account on the scheduled due date via the e-mandate. If the debit fails due to insufficient funds or a bank-side issue, late payment charges and bounce charges apply as specified in the loan agreement.
You can use the Interest Calculator to estimate how your pledged mutual fund investments could grow over time, even while they remain invested during the loan tenure.
How to Repay Principal: Step by Step
Principal repayment is initiated via the loan dashboard in the smallcase app or on the website. If you have not yet applied, see how to apply for LAS. The steps below apply to both partial and full principal repayment.
1. Open the Loan Dashboard
Log in to the smallcase app or website. Navigate to the ‘More’ tab and select ‘Loan Against Mutual Funds’ or ‘Loan Against Stocks’ to access your loan dashboard.
2. Select ‘Repay Cash’
On the loan dashboard, tap or click the ‘Repay Cash’ button. This initiates a principal repayment. It does not cover the monthly interest payment, which is handled separately via auto-debit.
3. Enter the repayment amount
Enter the amount to be repaid. A partial amount or the full outstanding principal can be entered. There is no minimum amount specified for principal repayment.
4. Choose your payment mode
Complete the payment via the available modes, Net Banking, UPI, or Debit Card, through the secure payment gateway.
5. Confirm and track
Once the payment is processed, the outstanding principal is reduced, and the available credit limit is restored by the repaid amount. The updated balance is reflected on the loan dashboard.
Note: Principal repayments made via the dashboard are applied to the outstanding loan amount immediately upon processing. Interest continues to accrue on the remaining balance until the next billing cycle.
How is the Credit Limit Restored After Repayment?
Repaying principal on a revolving LAS restores the available credit limit by the repaid amount. This is one of the key benefits of LAS — no new application or additional verification is required to access the restored credit.
Partial Repayment Restores Credit Proportionally
If the total credit limit is ₹5 lakh and the outstanding principal is ₹3 lakh, repaying ₹1 lakh reduces the outstanding to ₹2 lakh and restores ₹1 lakh to the available credit. That ₹1 lakh can be withdrawn again at any point during the tenure.
Full Repayment Restores the Full Credit Limit
Repaying the entire outstanding principal restores the credit line to the full sanctioned amount. If the value of the pledged holdings has changed since the loan was taken out, the available credit limit for the next withdrawal will reflect the current collateral value and the applicable LTV.
Subsequent Withdrawals Follow the Same Loan Terms
Any amount withdrawn after repayment is subject to the same terms as the original loan; interest accrues from the date of withdrawal at the applicable rate. The minimum withdrawal per transaction is ₹2,500.
What Happens if a Monthly Interest Payment is Missed?
If the auto-debit for monthly interest fails, due to insufficient funds, a mandate rejection, or a bank-side issue, the following consequences apply:
Late Payment Charges Accrue on Overdue Interest
Overdue interest attracts additional late payment charges from the due date until the outstanding interest is cleared. The applicable rate is specified in the loan agreement and fee schedule.
Bounce Charges Apply on a Failed Debit
If the e-mandate debit is returned unpaid by the bank, a bounce charge is levied on the loan account. The exact charge is specified in the loan agreement. A failed debit does not automatically close the loan or trigger any lien release.
Overdue Interest can be Cleared via Loan Dashboard
Overdue interest payments can be cleared from the loan dashboard by navigating to ‘Make Payment’ or ‘Clear Overdue’. Payment can be completed via Net Banking, UPI, or Debit Card. Late payment charges continue to accrue on the overdue amount until it is settled.
Missed Payments may be Reported to Credit Bureaus
Missed interest payments may be reported to credit bureaus by the lender, which can affect the borrower’s credit history. The reporting policy depends on the lender’s terms as specified in the loan agreement.
Repaying a Shortfall: When a Margin Call is Triggered
A margin call or LTV breach occurs when the market value of the pledged stocks falls, and the outstanding loan exceeds the permitted Loan-to-Value ratio. The lender issues a shortfall notification requiring action within the grace period (typically 7 days).
There are two ways to resolve a shortfall:
Option 1: Repay the Shortfall Amount in Cash
Log in to the smallcase app, go to the loan dashboard, and use the ‘Repay Cash’ option to repay at least the shortfall amount. This brings the outstanding loan back within the permitted LTV and resolves the margin call.
Option 2: Pledge Additional Eligible Securities
If other eligible stocks or ETFs are held in the demat account, pledging additional holdings increases the collateral value and restores the LTV ratio. Securities must be on the approved list of eligible securities to qualify as additional collateral.
Consequence of No Action Within the Grace Period
If neither option is completed within the 7-day grace period, the lender has the right to sell a portion of the pledged securities to recover the shortfall. The sale proceeds are applied to the outstanding loan, and any surplus after clearing dues is credited back to the borrower.
For context on how stock market conditions affect LAS, see LAS and market conditions.
How to Close Your Loan Against Securities on smallcase?
A LAS can be closed at any time before the 36-month tenure ends. There are no foreclosure or prepayment charges. The closure process requires all outstanding dues to be cleared before the lien can be released.
1. Repay All Outstanding Principal
Repay the full outstanding principal via the ‘Repay Cash’ option on the loan dashboard. The payment must be processed and reflected on the account before proceeding to closure.
2. Clear all Pending Interest
Verify that no overdue or current-cycle interest remains unpaid. Any pending interest must be settled before a closure request can be processed.
3. Raise a Closure Request
Go to the Help section of the loan dashboard or contact smallcase support at help@smallcase.com to raise a formal loan closure request.
4. Lien Release by the Lender
Once closure is confirmed, the lender initiates the lien release process with the depository (NSDL or CDSL). The lien on the pledged stocks is removed, after which the shares become freely tradable in the Zerodha demat account.
5. Closure Confirmation
A confirmation is issued once the loan account is formally closed. The demat account statement will no longer reflect a lien against the previously pledged securities.
Note: Lien release timelines depend on the depository processing cycle. Allow a few business days after full repayment is confirmed for the lien to be removed from the demat account.
What Happens to Pledged Stocks After Loan Closure?
Once the loan is fully repaid and closure is processed, the following changes apply to the previously pledged holdings:
Lien is Removed from the Demat Account
The pledge recorded with the depository is released. The restriction on the sale or transfer of those securities has been lifted. The demat account statement reflects the updated status once the depository processes the release.
Shares Remain in the same Demat Account
The pledged shares were never transferred out of the demat account; the lien restricted their sale but did not affect a transfer. After closure, they remain in the same account and are available for sale or transfer without any further action.
Holding Period for Capital Gains is Unaffected
The holding period for capital gains tax has continued to run from the original purchase date throughout the loan tenure. The pledge and subsequent closure do not reset or affect the holding period calculation.
Dividends and Corporate Actions During the Pledge Period are Unaffected
All dividends received, and corporate actions, such as bonus issues or stock splits, that occurred while the shares were pledged are final. No reversals or adjustments are made due to the loan closure.
Types of Repayment on a LAS
| Repayment Type | What It Covers | How to Initiate |
| Monthly interest | Interest on outstanding principal for the month | Auto-debited via e-mandate on due date |
| Overdue interest | Interest is not debited on the due date | Via ‘Clear Overdue’ on the loan dashboard |
| Partial principal repayment | Any portion of outstanding principal | Via ‘Repay Cash’ on the loan dashboard |
| Full principal repayment | The entire outstanding principal balance | Via ‘Repay Cash’ on the loan dashboard |
| Shortfall repayment (margin call) | Excess outstanding above the LTV threshold | Via ‘Repay Cash’ or pledge additional stocks |
| Loan foreclosure | Full outstanding principal + all pending interest | Repay all dues + raise closure request via support |
To Wrap Up…
A LAS operates differently from fixed-term loan products. Monthly interest is auto-debited from the outstanding principal; principal repayment has no fixed schedule and can be made at any point during the tenure without prepayment charges. The credit limit is restored as the principal is repaid.
Missed interest payments attract late charges and may be reported to credit bureaus. A margin call must be resolved within the grace period, either by repaying the shortfall or by pledging additional eligible securities. If unresolved within the specified period, the lender may liquidate a portion of the pledged holdings.
All About Loan Against Securities & Loan Against Mutual Funds on smallcase –
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Frequently Asked Questions About LAS Repayment
No. Neither Loan Against Mutual Funds nor Loan Against Stocks works like a traditional EMI-based loan. Both are structured as revolving credit lines where you only pay monthly interest on the amount you’ve withdrawn, the principal can be repaid anytime, in full or in parts, with no penalties. Interest is calculated only on your outstanding principal, not the full sanctioned credit limit. So if you’ve drawn ₹1 lakh from a ₹4 lakh limit, you pay interest on ₹1 lakh only, approximately ₹833/month at 9.99% p.a.
Disclaimer: Loan terms are subject to lender policies at the time of application. Please read the loan agreement carefully before applying.
When a portion of the outstanding principal is repaid, the outstanding loan balance reduces by the repaid amount and the available credit limit is restored by the same amount. The restored credit can be drawn again at any time without a new application. Interest in subsequent months is calculated on the reduced outstanding balance.
No. The outstanding principal can be repaid partially or in full at any time during the loan tenure without prepayment or foreclosure charges. The costs associated with a LAS on smallcase are the processing fee at the time of sanctioning, monthly interest on the outstanding amount, and charges for late payment or failed debit as specified in the loan agreement.
If the auto-debit for monthly interest fails, the borrower is notified. Overdue interest can be cleared from the loan dashboard via the ‘Clear Overdue’ or ‘Make Payment’ option using Net Banking, UPI, or Debit Card. Late payment charges accrue on the overdue amount until it is settled. Bounce charges also apply if the e-mandate debit was returned unpaid by the bank.
Disclaimer: Late payment charges and bounce fees are as specified in the loan agreement. Confirm exact amounts with smallcase support or the loan agreement document.
A margin call is triggered when the market value of the pledged stocks falls and the outstanding loan exceeds the permitted LTV ratio. The lender notifies the borrower to either repay the shortfall amount or pledge additional eligible stocks within 7 days. The shortfall can be repaid via the ‘Repay Cash’ option on the loan dashboard. Additional eligible securities from the Zerodha demat account can also be pledged to restore the collateral coverage. If neither is done within 7 days, the lender may sell a portion of the pledged stocks to recover the shortfall.
Disclaimer: Market-linked collateral carries valuation risk. The terms of margin call resolution are governed by the loan agreement.
Once the full outstanding principal and all pending interest are repaid and a closure request is raised, the lender initiates the lien release with the depository. The lien removal from the Zerodha demat account typically takes a few business days after closure is confirmed, depending on depository processing timelines. A confirmation is issued once the loan account is formally closed and the lien is removed.
No. All dues must be cleared before a closure request can be processed. This includes both the outstanding principal and any pending or overdue interest. Overdue interest must be settled via the loan dashboard first, followed by full principal repayment, before a formal closure request can be raised.
Disclaimer: Loan closure terms are as per the Master Loan Agreement. Contact smallcase support for clarification specific to your account.
No. Voluntary repayment of the full outstanding loan does not trigger any sale of pledged stocks. Full repayment results in the release of the lien, after which the stocks become freely tradeable in the demat account. Sale of pledged securities by the lender occurs only in a default or unresolved margin call scenario.
No. Loan closure does not affect the holding period of the pledged stocks. The holding period for capital gains tax has been running from the original date of purchase throughout the loan tenure. The pledge, loan activity, and closure do not reset or interrupt it. The holding period is only affected by an actual sale of the shares.
Disclaimer: Tax treatment depends on individual circumstances. Consult a qualified tax advisor before making decisions based on tax considerations.
Principal repayment and overdue interest payments can be made via Net Banking, UPI, or Debit Card through the secure payment gateway on the smallcase app or website. Monthly interest is auto-debited via the e-mandate linked to the registered bank account. The payment gateway is available at all times, so repayments can be initiated on any day.
