How to Avail Loan on Fixed Deposit without Breaking-Up Funds?

FDs are safest and best investment. You can have situation when you would require money in emergency. You don't break-up your FD under such situations. Rather than breaking-up your FD, fixed deposit loan is a perfect alternative. By doing that, you get a loan without cashing out your savings, without losing money while meeting short-term cash needs.

This tutorial will walk you through borrowing against fixed deposit, its benefits, and variables that influence the loan against fixed deposit interest rate.

What is a Fixed Deposit Loan?

A fixed deposit loan is a collateral loan where you are mortgaging your FD. Banks and financial institutions give loans against FDs at minimal interest rates, lower than a personal loan since the FD itself is being taken as security.

Key Features:

• You can obtain a loan equivalent to 90% of the value of your FD term.
• Loan against fixed deposit interest rate between 1% to 2% over FD interest rate.
• No credit check.
• FD continues to earn interest even when it takes the loan.
• Simple repayment period.

Benefits of Availing Loan against Fixed Deposit

• Save Savings: Your FD remains secure and continues to earn interest.
• Lower Rate of Interest: It is a secured loan and hence has a lower rate of interest than personal loans.
• No Credit Score Required: No credit score is required to avail it, and hence it is a good option for individuals having bad or zero credit score.
• Instant Disbursal: Instant disbursal of the loan is provided in all the banks.
• Easy Repayment Tenure: You have the liberty of repayment of the loan as and when you want, usually as per your FD tenure.
• No Further Collateral Required: You are not required to use the FD itself as collateral and therefore are not requested to produce any further collateral.
• Tax Advantage: Interest on fixed deposit loan can, in some circumstances, be claimed as tax-deductible business expenditure.

Procedure to obtain Loan against Fixed Deposit

You can obtain a loan against fixed deposit both offline as well as online. Following is the procedure:

Step 1: Eligibility Check

Ensure to check if your FD is active with minimum balance available to invest and hence eligible to take the loan. All the banks are making it a mandatory requirement that there should be at least an FD for 6 months.

Step 2: Select the Loan Amount

Banks provide 70% to 90% of deposit amount in FD. Select what you require amount-wise and compare the fixed deposit rate of interest loan.

Step 3: Take the LoanOnline Application:

• Log in at net banking website of your bank.
• Go to 'Loans Against Fixed Deposit' link.
• Enter FD details and select loan amount.
• Apply online.

Offline Application:

• Visit your bank branch with FD details.
• Fill loan application form.
• Submit documents required.

Step 4: Sanction and Disbursal of Loan

Your application is processed and the loan credited to your bank account immediately, mostly within a couple of hours.

Influencing Factors of Loan Against Fixed Deposit Rate of Interest Rate of Interest

Loan against fixed deposit rate of interest will be different based on the following factors:

• FD Rate of Interest: The loan will be charged 1% to 2% above the FD rate of interest.
• Bank Policy: Every bank is having its own rate and policy for loan against FD.
• Amount of Loan: Slightly different terms and rates can be available for higher value loan amount.
• Tenure: Little lower interest rate than long tenures can be available for short tenures.
• Kind of FD Holder: Preferential rate for loan can be available for senior citizens.
• Mode of Repayment: In some banks, lower interest is offered if you repay through automatic payment under standing instructions.
• Economic Conditions: Interest rate may change depending on market and banking policy.

Leading Banks with Loan against Fixed Deposit Rate of Interest in 2024

Following are the leading banks with loan against fixed deposit rate of interest:

State Bank of India (SBI)

• Loan Amount: Maximum 90% of FD
• Interest Rate: FD rate + 1%
• Tenure: Up to maturity of FD

HDFC Bank

• Loan Amount: Maximum 90% of FD
• Interest Rate: FD rate + 1.5%
• Tenure: Up to maturity of FD

ICICI Bank

• Loan Amount: 90% of FD
• Interest Rate: FD rate + 1.5%
• Tenure: Flexible until FD maturity

Axis Bank

• Loan Amount: 85% of FD
• Interest Rate: FD rate + 1.5%
• Tenure: Flexible

Punjab National Bank (PNB)

• Loan Amount: 85% of FD
• Interest Rate: FD rate + 1%
• Tenure: Up to FD maturity

Alternatives to Fixed Deposit Loan

A fixed deposit loan is a great concept, but here are the alternatives you may opt for:

• Personal Loan: Secured loan but with a higher interest.
• Gold Loan: If you own gold assets, you can take a loan against them but with less interest.
• Overdraft Facility: Some banks provide an overdraft facility in salary accounts or saving account.
• Credit Card Loans: Costly but immediate since they charge a higher interest.
• Loan Against Mutual Funds or Shares: If you own diversified investments.
• Home Loan Top-Up: If you already have a home loan, the top-up facility enables you to take additional money at a competitive rate of interest.

Points to Keep in Mind

• Make sure that your FD has enough term left to match the duration of the loan.
• Return the loan ahead of time to avoid inviting penalty.
• Compare banks to obtain the maximum fixed deposit rate of interest to borrow a loan.
• Nominal processing charge can be charged by some banks.
• Read the terms and conditions carefully before submitting your request.
• Prepayment free, if at all, by your bank.
• Avoid any other charges, i.e., foreclosure charges.

Conclusion

Borrowing against fixed deposit is a wonderful way of dealing with financial crises without dipping into your savings. With a lower interest rate on loan against fixed deposit compared to personal loans, lesser documentation, and faster disbursal, it is a hassle-free and low-cost borrowing facility. Always compare the loan terms and the interest rate before selecting the best offer. With this, you can enjoy your FD without compromising your savings journey. With a judicious choice, you can use this facility without any detriment to your finances. Additionally, early repayment fortifies your finance and puts your future in a good position to borrow.