A Fixed Deposit (FD) is not just a safe investment option; it can also serve as collateral to secure a loan in times of financial need. Instead of breaking your FD prematurely, you can avail of a loan against a Fixed Deposit and continue earning interest on your investment. This facility is beneficial for those who need funds urgently but do not want to lose the benefits of their FD.
What is a Loan Against Fixed Deposit?
A loan against FD allows depositors to borrow money from a bank or financial institution by pledging their FD as collateral. The loan amount is typically a percentage of the FD value, usually ranging from 75% to 90% of the deposit amount, depending on the bank’s policies.
Benefits of Taking a Loan Against FD
Lower Interest Rates: The interest rate on a loan against FD is lower than that on personal loans or credit cards since it is a secured loan.
Continued Interest Earnings: Even when you take a loan, your FD continues to earn interest at the agreed-upon FD rates.
No Credit Score Dependency: Since the loan is secured against your FD, banks do not heavily rely on your credit score for approval.
Quick and Hassle-Free Processing: The loan approval process is quick, as banks already hold your FD as collateral.
Flexible Repayment Options: Borrowers can choose repayment tenures that align with their financial capabilities.
Eligibility Criteria
Most banks and financial institutions have simple eligibility criteria for availing of a loan against FD:
The FD must be with the bank where you are applying for the loan.
The applicant must be the primary account holder of the FD.
The FD should not be under a joint account with minor nominees.
The minimum FD amount eligible for a loan varies by bank.
How to Apply for a Loan Against Fixed Deposit?
Applying for a loan against an FD is a straightforward process. Here’s a step-by-step guide:
Step 1: Check Loan Eligibility
Use the bank’s official website or visit a branch to check the loan eligibility against your FD. Some banks also provide an online eligibility calculator.
Step 2: Choose Loan Type and Amount
Decide on the loan amount based on the percentage allowed against your FD. Most banks offer up to 90% of the FD value as a loan.
Step 3: Submit Loan Application
You can apply online through your bank’s net banking portal or visit the branch in person. Provide necessary details such as:
FD account number
Loan amount required
Preferred tenure
Step 4: Sign the Loan Agreement
Once your application is reviewed, the bank will provide a loan agreement outlining the terms, including interest rates, tenure, and repayment schedule. Read the agreement carefully and sign it.
Step 5: Loan Disbursal
Upon approval, the loan amount is credited to your savings account linked to the FD, typically within a few hours.
Things to Keep in Mind
Interest Rates: The loan interest rate is usually 1-2% higher than the FD rates.
Repayment Tenure: The tenure of the loan cannot exceed the FD’s maturity date.
Premature FD Closure: If you close your FD prematurely, the outstanding loan amount will be deducted from the FD proceeds.
No Processing Fees: Many banks do not charge processing fees for loans against FD, making it a cost-effective borrowing option.
Conclusion
A loan against a Fixed Deposit is an excellent way to meet financial needs without breaking your FD. With low-interest rates, quick approvals, and minimal documentation, it is one of the best-secured loan options available. Before applying, compare different FD rates and loan terms across banks to make an informed decision. If you require funds but want to keep your investments intact, this loan option is worth considering.