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Fixed Deposit

Things To Know Before Taking Loan Against Fixed Deposit

Fixed Deposit

A fiscal crisis is inevitable Taking Loan . It could be medical, educational, or personal, which demands you to arrange cash immediately. These days, people go with personal loans as one of the viable options. But there are also a large number of them who prefer liquidating their fixed deposit before tenure to suffice their need. Seldom do people know that they can still get emergency money without liquidating the fixed deposits.

They can apply for a loan against their fixed deposits and enjoy manageable interest against their deposits. So, if you have been unaware of this fact, this article is for you. You will learn about the benefits of taking a loan against FD and some must-know information about it. 

Taking a loan against fixed deposits

Many banks provide this option that sanctions you a loan within a couple of minutes. When you choose the option of taking a loan against your FD, you don’t unnecessarily break your premature fixed deposit and get the loan easily.

But as a few people know, there are two types of money borrowing options against fixed deposits, loans against FD and overdrafts. 

  • Overdrafts or OD limit against FD

OD limit or Overdraft facility allows you to get an amount lower than the fixed deposit amount. But the interest charged in this method is higher than the interest rate of FD. The best part about the OD limit is that customers can hold the money and pay the interest timely for whatever duration they feel like but not beyond the maturity of FD. There is no fixed duration to return the overdraft. 

  • Loan against FD

In the second option of taking a loan FD, the financial institution actually keeps your fixed deposit as collateral to lend you the money. Therefore, it is kind of a secured loan, and the interest charged is less as compared to overdraft. Moreover, if the customer cannot repay the loan, the bank has the authority to procure the loan amount during the maturity settlement of the FD.  

So, you can go with one of the options and get the loan amount needed to suffice the fiscal crisis. And if you ask about the benefits of taking against fixed deposits, then have a quick read. 

Benefits of taking a loan against fixed deposit

  1. There is no processing charge for carrying out the process.
  2. Customers are charged lower rates of interest.
  3. The loan can be taken against any kind of FD, including NRI FDs as well as domestic FDs.
  4. The requirement of documentation is also minimal.
  5. Most importantly, your fixed deposit remains intact till maturity. 

Important things to learn before applying for a loan against the fixed deposit

  • The loan against FD is a secured loan. The bank decides the amount to be taken as a loan against FD. It could vary from 7o% to 95% depending upon the banking institutions. E.g., SBI approves 90% of value to be taken as a loan. So, if you have a fixed deposit of 10lakh, you are eligible to get a loan of 9lakh against your fixed deposit. 
  • The eligibility criterion is simple, and anybody with a savings account can get a loan against FD. You definitely don’t need to have a better credit score, job, or a good salary to avail yourself the same. 
  • Anybody can avail of a loan against their fixed deposit. The loan against fixed deposit is not possible if the FD is in the name of a minor or the fixed deposit is a 5-year tax-saving plan.  
  • Loans against fixed deposits have lower rates of interest as compared to personal loans. Most banking institutions charge 2% more than the fixed deposit rate. Only in the case of SBI, the charge is 1% more than the fixed deposit rate. Also, there is no processing fee for carrying out the loan process. 
  • The fixed deposit holder can pay the loan against their fixed deposit either in lump sum or installments. However, the repayment should be concise within the maturity duration of their FD. 
  • As mentioned above, the loan against FD does not come with a separate tenure. The borrower has to repay the loan amount within the maturity tenure of the fixed deposit as held by the bank. 
  • If the borrower plans to foreclose the loan, the bank will not levy any penalty charges for the foreclosure of the loan taken against the fixed deposit. 
  • If you need a small loan amount, the process can be done online, and the loan is sectioned within a couple of minutes. But, if the loan amount is relatively big, like more than 50% of the fixed deposit amount, then the fixed deposit holder will have to visit the branch to get the loan processed. 
  • If the borrower has a corporate fixed deposit, he is still liable for the loan against the FD. But in the case of corporate FD, there are some terms and conditions to be followed. The borrower has to wait for a time period of 3 months after opening the FD. Also, in the case of corporate fixed deposit, the loan amount cap is fixed to 75% of the FD amount.
  • The FD is taken as collateral for the loan. If the borrower fails to repay the loan amount timely, the bank settles the loan amount from the matured fixed deposit. 
  • Once the borrower takes a loan against FD, the bank generates a lien. It is more likely an automatic claim on the fixed deposit, which allows the bank to procure the loan amount if the borrower becomes a defaulter. 
  • The loan against fixed deposit works in favor of your Credit Score as you get a carefully constructed loan repayment plan.  

If you don’t have a fixed deposit account?!

If you need quick money but don’t have a fixed deposit account, you cannot take a loan against FD. But you should not worry as you still have got many affordable options. You can apply for personal loans. Personal loans are great options for fulfilling short-term goals. 

Should you take a loan against FD?

Well, if you have an immediate need for finances and you don’t have a good CIBIL score, the loan against a fixed deposit is a better idea instead of liquidating it before the tenure completes. But things vary according to the amount of your fixed deposit and your loan requirement. In major cases, a loan against the fixed deposit does not align with your need, and therefore, a personal loan seems like a viable option.\

Therefore, both having a loan against FD and applying for a personal loan suffice according to varying demands of money and emergency. But in case you choose to opt for a personal loan, you must be aware of strict eligibility criteria set by different banks and NBFCs for availing of personal loans. One of the major requirements is a good credit score and repayment behavior. 

So, research about personal loans and how EMIs are calculated. For more help, you can also contact experts in the industry.

With the hope that this article has cleared all your doubts related to loans against FDs, you can now make the right decision governing your financial securities.

Sanket Goyal
the authorSanket Goyal