A loan against fixed deposit (FD) is a type of loan that is offered by banks and financial institutions in India where individuals can take a loan against their fixed deposit account.
Often we need money instantly but don’t want to borrow it at a very high-interest rate. It happens when we need funds for a short-term requirement. A loan against fixed deposit (FD) is a type of loan that is offered by banks and financial institutions in India where individuals can take a loan against their fixed deposit account. The loan amount is generally a percentage of the value of the fixed deposit account.
Here are some key features and details about loan against fixed deposit in India:
Loan amount: The loan amount offered by banks against FDs generally ranges from 70% to 90% of the value of the fixed deposit. The exact percentage may vary from bank to bank.
Adhil Shetty, CEO, Bankbazaar.com, says, “Since the loan is secured against the fixed deposit, the approval process for a loan against FD is generally quick and easy. The bank already has the collateral in the form of the fixed deposit, so there is no need for extensive documentation or verification of income.”
Interest rate: The interest rate charged on the loan against FD is generally lower than that of other loans such as personal loans or credit card loans. The interest rate may range from 1% to 2% higher than the interest rate offered on the FD.
Tenure: The tenure of the loan is generally shorter than the tenure of the fixed deposit. It can range from 7 days to 5 years, depending on the bank and the terms and conditions of the loan.
Eligibility: The eligibility criteria for availing a loan against FD may vary from bank to bank. Generally, the individual should be a resident of India and have a fixed deposit with the bank.
Documentation: The documentation required for availing a loan against FD is minimal. The individual needs to submit the fixed deposit receipt, a loan application form, and identity and address proof documents.
Repayment: The repayment of the loan against FD is generally done in EMIs (Equated Monthly Installments). The EMI amount is calculated based on the loan amount, interest rate, and tenure of the loan.
Read More: Increasing Employees Provident Fund contribution to PPF, NPS: 6 things to do after salary hike
Prepayment: Prepayment of the loan against FD may attract a penalty fee. The penalty fee may vary from bank to bank.
Loan disbursement: The loan amount is generally disbursed within a few days of the loan application being approved.
Impact on FD: While the FD continues to earn interest, the loan against FD will attract interest. The interest earned on the FD will be lower than the interest rate offered on the loan.
Loan against fixed deposit is a convenient option for people who need funds urgently and have a fixed deposit account. The interest rates are generally lower than other loans, and the documentation required is minimal. However, individuals should carefully evaluate their financial situation and consider the impact on the fixed deposit account before availing a loan against FD.
