With a loan on FD, you can apply for a loan and keep your current fixed deposit intact. It's an intelligent way to meet your financial emergencies without disturbing your savings. Let’s delve into the blog to comprehend how it works, long against FD interest rate, its features, and why it might be a better option than the other loan types.
How Does Loan Against Fixed Deposit Work?
Submitting a loan application for an FD gives rise to secured loans with your fixed deposit standing as collateral. Instead of withdrawing your deposit, you can apply for a loan that may be equivalent to 75 to 90 percent of the deposit under the policy that states that it depends on the bank. The FD keeps on earning interest while you repay the loan; hence, it is certainly a win-win situation.Here's how a loan against a fixed deposit would go:
You apply for a loan against a fixed deposit with your bank.
The bank evaluates the FD amount and allows a loan typically within a few hours.
The loan against FD interest rate is usually 1-2% higher than your fixed deposit rate.
The amount is instantly credited to your account.
You can make repayment in flexible EMIs or lump sum before your FD matures.
Once the loan is fully repaid, your FD remains intact.
Why Choose a Loan Against Fixed Deposit?
When in need of immediate cash, getting that personal loan or a credit card looks so tempting. But then again, a loan against fixed deposits could be a better option for the following reasons:1. Lower Interest Rates – It is substantially lower compared to the unreasonably high rates that come with personal loans; the loan against FD interest rate is lower.
2. No Requirement of a Credit Score – Since the FD serves as collateral, there is no need in such circumstances for banks to check credit scores, which makes this pretty ideal for people with low or no credit history.
3. They Get Approved and Disbursed Quickly – Because the amount is secured, banks provide the loan much faster than that of unsecured loans.
4. Continued Interest Earnings - The FD remains intact while you put the loan amount to good use but keeps on giving the interest earnings.
5. Zero Processing Fees – many banks do not charge a processing fee at all making it cheaper to borrow.
6. Flexible Repayment Options – You can either choose to repay the loan by some EMIs or pay it back as a lump sum before the maturity of the FD.
Understanding Loan Against FD Interest Rate
One of the other advantages is interest rates on such loans. Usually, the loan against the FD interest rate is 1% to 2% greater than the FD rate. For instance, the loan may have an interest rate of 8% if your FD is yielding 6%; this is still far less than a personal loan, which may have an interest rate of more than 12–15%.Furthermore, there is no chance of rejection because the loan amount is secured against your FD, making it a secure and cost-effective borrowing choice.
Eligibility Criteria for Loan on FD
Anyone who has a fixed deposit with a bank or financial institution is eligible to apply for a loan on FD. This includes:An individual account holder.
All joint FD account holders (with the consent of all these holders).
Senior citizens.
Business owners who have corporate FDs.
Loan on FD vs. Personal Loan: Which is Better?
If you are in a dilemma between a loan on FD and a personal loan, below are some differences:Loans on FD have lesser interest rates than personal loans whose rates usually fall between 10%-20%.
Since FD already acts as security for losses, it has a quicker process of approvals than unsecured loans.
A loan against a fixed deposit doesn't require a high credit score, unlike personal loans.
Processing fees are zero in many banks for loans on FD making them cheaper.
The repayment options are flexible; however, the period of repayment must not exceed the maturity of FD.
What are the Things to Keep in Mind Before Applying Loan on FD?
FD loans are subject to the following considerations:Loan amounts are usually 75% to 90% of the FD value.
The duration of the loan cannot extend beyond the maturity date of the FD.
Interest on the loan is charged only on amounts withdrawn from the FD account.
Some banks impose penalties for early repayment, so you need to check when you apply.
In case of default on repayment, the bank can recover the loan amount from your FD.
