Loan against Fixed Deposit (FD)

People typically seek financing choices such as loans and other lending opportunities during a cash shortage or financial emergency. Taking loans against your fixed deposits is one of those key sources (FD). This is a quick way to receive a short-term loan from a financial institution. Instead of prematurely terminating your FD, you may easily obtain a loan against FD from the same bank where you hold your fixed deposits.

What Is Loan Against FD?

A loan against FD is a credit facility given by all Indian banks as a secured loan at a lower interest rate than other unsecured loans. The quantity of the loan is determined by the bank’s policy. Furthermore, this proportion varies per bank, with a maximum of 95% of the fixed deposit amount.

Advantages Of A Loan Against Fixed Deposit

Loan Amounts Ranging From 70% to 90%:

You can borrow between 70% and 90% of the amount of your fixed deposit. Assume you have a fixed deposit of Rs.10 lakhs, allowing you to borrow between Rs 7 lakhs and Rs 9 lakhs. Even after the loan is approved, the remaining balance in the fixed deposit account will continue to generate interest. The loan amount that can be approved varies per bank.

Low Interest Rates: Loans against fixed deposits have substantially lower interest rates than other loan types. Assume it is just 2% to 3% more than the fixed deposit rate. For example, if your bank provides 9.25% on fixed deposit accounts, you will have to pay 11.25% on your loan against the FD. This is far lower than the average interest rate charged by banks on personal loans.

Flexible Payment Procedure: It is critical to remember that the loan against a fixed deposit has the same duration as the fixed deposit itself. While the loan might have a shorter term than the fixed deposit, it cannot have a longer term than the deposit. For example, if the Fixed Deposit duration is 5 years, the loan can be less than or equal to 5 years, but not greater than that.

Zero Processing Fee: There is no processing charge for this type of financing. There is no need to pay an additional processing charge, as is the case with other loans. As a result, the overall cost of the loan is reduced.

Easy Application Process: This is one type of loan that is quite simple to apply for. There is relatively little documentation required because you already have a fixed deposit account. You simply need to complete the necessary documents, and you can also apply for a loan against a fixed deposit online.

There Is No Need To Break The Fixed Deposit:

Unfortunate circumstances, catastrophes, and unexpected developments may cause many people to withdraw funds from their fixed deposit accounts for urgent cash flow. However, with the option of taking out a loan against your fixed deposit, you may maintain your deposit while meeting your urgent cash demands.

Who Can Apply For A Loan Against FD?

For a loan against FD, the following requirements apply:

• The loan applicant must have an FD with the bank to which the secured loan is being applied for.
• Everyone has a fixed deposit, including joint fixed depositors.
• The applicant must be an Indian resident, a family trust, a Hindu Undivided Family, an association, or a society. Additionally, single proprietorships, group corporations, and partnership firms are eligible to apply for the loan.
• A loan is not available for a 5 year Tax Saving Fixed Deposit.
• A fixed deposit in the name of a minor is not loanable.

Features Of Loan Against FD

Lower interest rates – Interest rates are lower since your fixed deposit is used as security for a loan. These loans often have interest rates that are 2 to 2.5 percent lower than personal loan interest rates. As a result, the comparable monthly payments (EMIs) on these  loans are cheaper.

Lower Documentation – Your KYC procedures have already been updated by the bank once you started your FD. As a result, the paperwork necessary for a loan against your FD will be modest. You will not be required to provide documents such as proof of income, ITRs, or other tax returns because the bank already has these facts.

Credit Score – Before granting you any form of loan, banks will verify your credit score (secured or unsecured). However, your CIBIL or credit score will not be used when establishing your eligibility for a loan against an FD. As a result, such loans may be a realistic option for those with bad or no credit. Many people do not have a credit score because they have never used credit cards, personal loans, or other financial services.

Loan Amount – If you want a personal loan, the maximum loan amount is decided by a number of variables. Your credit score, income, term, payback plan, and so on are examples of such elements. However, the maximum loan amount for a loan against an FD is limited by the amount of money in the FD account. This means that if you have a greater FD balance, you will be able to get a larger loan.

Prepayment – Because the bank loses money on interest when you pay off a loan early, they will charge you a penalty. This is a standard practice among most Indian banks. There is no prepayment penalty for a loan secured by an FD. This is due to the fact that the bank does not lose money on interest.

How To Apply For A Loan Against FD Online

The following is a description of the process for applying for a loan against the amount of a fixed deposit.

• On the bank’s website, go to /retail/loans/loan-against-fixed-deposit/.
• Then press the “Apply Now” button.
• On the following screen, you may log in with your cell phone number, birth date, and PAN.
• You can also use your debit card details or online banking credentials to log in.
• If you used the cellphone number, date of birth, and PAN, click “Send OTP” after entering the required information.
• Activate the OTP.
• Follow the procedures on the following page to apply for a loan.

Check out Kuvera Investment App to invest or know more about fixed deposits.