What is Loan Against FD?
What is a loan against FD? A loan against FD lets you borrow money by keeping your fixed deposit as security. It gives you access to quick funds during urgent needs without draining your savings. You can get up to 95% of the amount as a loan depending on the deposit value as well as bank rules. This makes it a smart way to manage expenses while your deposit stays safe.
The benefit is that your FD continues to earn interest for the full term. So you meet your financial needs and your investment keeps growing. With a personal loan against FD, you get both liquidity and returns at the same time.
Features of Loan Against FD
Wondering can we take loan against FD ? Here are the top features of a loan against FD:
1. Excellent Loan Value -Borrow the maximum amount of your deposit amount as a loan against FD, giving you access to instant funds.
2. Great Interest Rates -The loan against FD interest rate is usually lower than an unsecured loan, which makes loan repayment more affordable.
3. Fast & Easy Processing -The process is simple and fast with minimum documents, so you get money when you need it most.
4. Transparent Charges -Get clear terms that do not surprise you with hidden costs while processing your request.
5. Improve Your Savings Growth -You do not have to break your deposit, and it continues to earn interest through the entire investment period.
6. Repayment is Flexible -You can repay the borrowed amount during the loan tenure in a way that suits your financial capacity.
Eligibility Criteria for Loan Against FD
Anyone holding a fixed deposit can apply for a loan against FD, as banks keep the process simple. Still, there are a few points you should know before applying for this option.
Here is the personal loan eligibility criteria:
1. Should be a resident of India.
2. Minors cannot apply for this loan (age should be above 21 years).
3. Both sole proprietors & businesses with more than one owner can request the loan.
4. The loan tenure is linked to your fixed deposit, so it cannot extend beyond the FD maturity period.
Documents Required for Loan Against FD
Here are the personal loan documents required for loan against FD:
1. A completed loan application form.
2. Identity proof such as Aadhaar, PAN card, voter ID or driving licence.
3. Address proof such as Aadhaar, voter ID, electricity bill or rent agreement.
4. Bank account statements for the last six months.
5. Form 15G or 15H if you want an exemption on TDS for interest.
How to Apply for Loan Against FD?
How to take loan against FD? Follow these steps to apply for a hassle free loan against FD:
1. Fill out the loan application form –Visit your bank or financial institution, or download the form from the website. Complete the form with correct personal and financial details.
2. Submit the important documents –Attach the application with photocopies of your KYC documents and proof of income as needed. Provide the original fixed deposit receipt pledged as collateral.
3. Get the Loan Disbursed –The loan amount will be disbursed into your account after approval.
Reasons to Choose Loan Against FD
It is wise to weigh the benefits as well as drawbacks before applying for a loan against FD. Here are reasons why it is budget-friendly.
1. You are eligible to get a loan against an FD without a strong credit score.
2. Your fixed deposit keeps earning interest during the loan tenure.
3. The loan against FD interest rate is lower than an unsecured loan.
4. The process is fast & convenient, with very little verification required.
5. Approval is easier than a personal loan since your deposit works as collateral.
It is understandable that you can get funds by following the simplest process. However, you should keep these points in mind before applying.
1. Know the interest considering the loan & compare it with other options.
2. Understand the risk of default, as the bank may use your FD to recover dues.
3. Check repayment terms carefully to avoid charges for missing payments.
4. Some lenders may apply processing charges while sanctioning the loan.
5. Your fixed deposit cannot be withdrawn until the loan is cleared.
6. Check foreclosure or prepayment costs to plan smart repayment and save on interest.
Also Read: Loan on PPF Account
Loan Against FD Calculator
You should check all the terms. A loan against FD calculator helps you plan the following before taking a loan against FD –
1. The loan tenure.
2. The maximum amount of the loan.
3. Suitable loan against the FD interest rate.
4. Total amount of repayment.
When you use the calculator, you can easily plan whether you want a short term loan or a longer repayment period. Besides, you can also compare the rates offered by your bank with other options that are there in the market currently.
Benefits of Loan Against FD
The following are the benefits of loan against FD –
1. Fast approval - Your FD is used as security. Thus, the approval process for a loan against FD is quick and simple.
2. Get Lower Rates -A personal loan against FD usually comes with a lower loan against FD interest rate than an unsecured loan. That makes your repayment easy to manage.
3. No/Minimal Documents Required -Applying is quite easy as your bank already has your details. You only need the FD receipt and basic KYC. The bank has your basic information. Thus, you need to go through the application process without submitting crucial documents. You can even submit the KYC documents & FD receipt.
4. Repayment is Flexible with No EMIs Involved -Many lenders allow full repayment of your FD tenure. You get the loan as an overdraft. So, there’s no EMI involved. The tenure, however, is the same as the FD’s maturity period. You can clear your loan anytime before your deposit matures. Failing to deposit the loan amount before maturity may result in deductions from the outstanding amount.
5. Get FD Benefits -While you take the loan, you can still apply the interest on the deposit during the loan period. Thus, the FD amount remains safe.
How does a Loan Against FD work?
How does loan against FD work? The process of taking a loan against FD is simple & easy to understand. Find out more from the following points –
1. Collateral -The fixed deposit is used as security for the loan.
2. Amount of Loan -You can borrow up to a set percentage of your FD, usually around ninety percent.
3. Rate of Interest -The loan against FD interest rate is usually slightly higher than the interest you earn on the deposit.
4. Repayment -The repayment time matches your FD maturity. You can close the loan early before the maturity if you have the funds.
5. FD Continuity -Your deposit remains active during this time, and it keeps earning interest.
When to take Loan Against FD?
A loan against FD works when you want speedy cash at a lower rate. It is easier to get compared to a regular personal loan. Lenders usually do not ask for high income proof or strong credit history when approving it. The paperwork is short & simple. This option can also help if you have a low credit score and need money without breaking your savings.
Things to Keep in Mind Before Taking Loan Against FD
Can I get loan against FD? The following are the things you should consider when taking a loan against FD –
1. Loan Tenure -The repayment period cannot go beyond the maturity of your fixed deposit.
2. Interest Calculation -Lenders usually charge interest on the full loan amount, not on the reducing balance.
3. FD Liquidation -The lender can use your deposit to cover the dues if you miss payments.
4. Credit Score Impact -Paying your loan on time can help improve your credit history.
Considerations of Loan Against FD
The following are the prime considerations to keep in mind before applying for a loan against FD –
1. Reduced Liquidity of FD -A loan against an FD may give you instant cash. However, it reduces the FD’s liquidity. Taking this loan limits your access to the deposit. The pledged amount stays locked until the repayment.
2. Interest Income & Its Impact - How much interest you earn on your FD may be influenced by this decision. When you decide to take a loan against FD, your deposit keeps earning returns. However, the effective interest may feel lower after adjusting the loan cost. As a result, it reduces your total interest earnings.
Frequently Asked Questions (FAQs)
Q.1. Do Fixed Deposits continue to earn interest when pledged as loan collateral?
Your Fixed Deposit continues to earn interest even when pledged for a loan. The deposit remains active for its original tenure, so you enjoy returns as planned. The only difference is that the bank or financial institution holds it as collateral until you repay the loan.
Q.2. How do I repay a loan taken against a Fixed Deposit?
Repayment works like other secured loans. You can pay through monthly installments or clear the outstanding anytime before maturity. Interest is charged on the borrowed amount, not the deposit. Timely repayment protects your deposit from liquidation and helps you maintain a positive credit history with the financial institution.
Q.3. What is the repayment period for a loan secured by a Fixed Deposit?
The repayment period for a loan against FD usually matches the tenure of the deposit itself. You must settle the loan within this duration. If you fail to repay on time, the institution may adjust the outstanding amount directly from your Fixed Deposit proceeds at maturity.
Q.4. Are there any deposit types that don’t qualify for loans against Fixed Deposits?
Certain deposits do not qualify. Five-year tax-saving Fixed Deposits are excluded from this facility. Such deposits cannot be pledged as collateral for loans. Regular Fixed Deposits, on the other hand, are eligible, subject to the lender’s policies. Always check the terms before applying for this loan option.
Q.5. What is the interest rate on a Loan Against FD?
The loan against FD interest rate is usually lower than unsecured borrowing. It is charged slightly higher than the return earned on your deposit. This rate makes the loan more affordable compared to personal loans. The exact percentage may vary depending on the institution and your deposit value.
Q.6. What is the maximum loan amount I can get against my FD?
You can usually borrow up to 90% – 95% of your Fixed Deposit value. The exact percentage depends on the lender’s policy and your deposit amount. This high loan-to-value makes it a reliable option for quick funds without breaking the deposit or losing interest benefits during the tenure.
Q.7. Is my FD affected if I take a loan against it?
Your Fixed Deposit remains intact and continues earning interest. The only effect is that you cannot prematurely withdraw or break it until the loan is repaid. If you miss payments, the lender can recover the dues by liquidating your deposit. Otherwise, your FD stays unaffected and secure.
