In today’s fast-paced life, almost everyone needs money in an emergency situation at some point or the other. If the need is for less money, then we can manage by borrowing money from friends and relatives, but when we need more money, most of us think of taking a loan.
In such a situation, if a personal loan is taken from a private or government bank, the interest rate on it becomes very high, and it is possible that we may have to mortgage something as security. For such situations, there is a way in which we can quickly fulfill our need of money at a low interest rate, without pledging anything, and the name of this way is, ‘Loan Against Fixed Deposit‘.
What is Loan Against Fixed Deposit?
Almost all banks offer loans against bank FDs, where your fixed deposit is pledged as collateral and the loan is secured against it. Since the loan is against FDs, it falls under the category of secured loans. Like any other loan, the loan against FD is paid to the borrower in one go, and the borrower repays the loan in the form of monthly installments along with interest. Your loan amount can range from 70% to 90% of the FD amount, and depends on the lender or banker. The terms and conditions including interest rate, loan tenure vary from lender to lender.
When a bank offers a loan against FD, they offer the loan at 2-3 percent higher than the prevailing FD interest rate. Suppose the interest rate of the FD opened by the depositor is 7%, then the interest rate on loan against fixed deposit (FD) will be 9-10%. You can also apply for loan against FD online. However, banks have also set limits for such loans, so if you need more amount than the amount available online, you can contact the nearest bank branch.
Benefits of Loans Fixed Deposit
- High Loan Amount: By taking a loan on FD, you can take up to 70 to 90% of your FD amount as loan. For example, if your FD is of 1 lakh, then you can take a loan of 70 to 90 thousand.
- Low Interest Rate: The interest rate of loan on FD is very low as compared to personal loan. Usually it is 2 to 3% more than the interest of FD. Meaning that if the interest rate of your fixed deposit is 5%, then the interest on the loan will be only 7 or 8%.
- Easy Repayment Procedure: The tenure of repaying the loan on FD is flexible. But one thing worth noting here is that this tenure cannot be more than the maturity time of your FD. For example, if your FD is for 5 years, then you have to repay the loan within 5 years.
- Zero Processing Fee: There is no processing fee for taking a loan against FD.
- Easy Application Process: Taking a loan against FD is a very easy task. Almost all banks give loans on it, and this work is done with very little documentation.
Who Can Apply For Loans Fixed Deposit?
Any person who has a full-fledged deposit (FD) through a either alone or joint account is eligible to apply for a loan relating to the FD.
Who Cannot Apply For Loans Fixed Deposit?
- Fixed Deposits held in a minor’s name
- Tax-Saver Fixed Deposits for 5 Years
How to Take Loans Fixed Deposit?
- You can apply for loan against FD online. For this you:
- Login to your bank’s net banking.
- Go to the Fixed Deposit option.
- Select Overdraft or Loan Against FD.
- Provide all the necessary information.
- If you want to apply for it offline then:
- Go to your bank branch.
- Submit all the necessary documents, such as application form, FD receipt etc.
Conclusion
The interest rate of loan on FD is much lower than personal loan and it is a good option to take a loan for a short period of time at a low interest rate. At the same time, FD is mortgaged to take a loan. If you have any question regarding this post, then you can tell us by commenting in the comment box given below. Your feedback and suggestions are welcome as always. Thank you.
