A fixed deposit is a great way to save money and grow your investments. It is also an excellent vehicle for borrowing funds in the short term. A fixed deposit can work as collateral for loans, and there are many ways to use your FDs to get a loan. All you need to do is approach the right lender and find out how much you can get a Loan against Fixed Deposit.
This article will show you how to get a loan against FD and give you all of the information that you need about this process. You’ll learn what types of loans are available, what rates they offer, the different procedures involved, and how it impacts your FDs.
What is a fixed deposit?
A fixed deposit is a type of savings account with a bank where you deposit money and the bank pays you interest on the deposit.
Typically, banks offer low interest rates on fixed deposits and people use them for emergency funds. Leveraging this type of account to get a loan makes sense because it’s already low-risk and secured by your assets.
When you want to use your fixed deposits as collateral against a loan, there’s some paperwork that needs to be done first. Find out more about how to get a loan against fixed deposits below!
What is Loan Against fixed deposit
You save money in your fixed deposit account for a rainy day. Sometimes life throws us a curveball and we need money sooner than expected. A loan against fixed deposit can be a great way to access the funds you need while still maintaining an emergency fund.
There are some considerations before taking out a loan against fixed deposit, so it is important to do your research and understand all the details before applying for one.
If your credit score is low, you do not fulfil the income qualifying conditions, or you do not have any other assets to pledge for a secured loan, you can borrow a loan against FD.
Such loans have interest rates that are 1% to 2% higher than the FD rate and can be repaid over a period of up to 60 months. These loans are often in the form of an overdraft or a demand loan.
Loan against FD is a sort of secured loan in which consumers pledge their fixed deposit as security in exchange for a loan. The loan amount is determined by the amount of the FD deposit. This might range from 90% to 95% of the deposit amount.
Top Banks Offering Loan Against FD
|Name of the Bank||Interest Rate||Loan Amount|
|Bank of Baroda||1% above the FD rate||Up to 90% of your FD amount|
|ICICI Bank||2-3% above the FD rate||Up to 90% of your FD amount|
|Axis Bank||2% above term deposit rate||Rs.25,000 onwards|
|State Bank of India||1% above the FD rate||Up to 85% of your FD amount|
|PNB Bank||1% above the FD rate.||Up to 90% of your FD amount|
|HDFC Bank||2% above the FD rate||Up to 90% of your FD amount|
|Federal Bank||2% above the FD rate||Up to 90% of your FD amount|
|Karur Vysya Bank||5% to 7%||Up to 90% of your FD amount|
|Deutsche Bank||2% above the FD rate||Rs.25,000 onwards|
SBI Loan Against Fixed Deposit – Features
- Get a loan for up to 85% of the value of your Fixed deposit.
- Depending on your requirements, we can provide both a demand loan and an overdraft facility.
- Interest rates are low. In addition, we charge interest on a daily decreasing balance!!
- There are no processing fees and no prepayment penalties.
- The minimum loan amount (for online overdraft against fixed deposit) is Rs 5000.
- The maximum loan amount (for online overdraft against fixed deposit) is Rs 5 crore.
- Margin: You can borrow up to 85% of the value of your Time Deposit.
- On the underlying Time Deposit, there is a Security Lien.
- Demand Loans and Overdrafts are the two types of loans.
- Internet Banking/YONO/Branch Offices
- The processing cost is Nil.
- Interest Rate: 1% more than the related Fixed deposit rate
Axis Bank Loan Against FD – Features
- Emergency Funds
- As per your requirements, you can obtain a loan of up to 85 percent of the value of your Time Deposit Overdraft Facility.
- There are no prepayment penalties.
- The minimum loan amount (for online overdraft against fixed deposit) is Rs 2,5000.
- Interest Rate: 1% more than the related time deposit rate
PNB Loan Against FD – Features
- Customers who use Retail Internet Banking Service/ PNB ONE are eligible.
- Minimum Advance Amount – Rs. 25000.00
- Maximum – Rs. 500 lacs in the case of Sugam Deposit and less than Rs. 100 lacs in other schemes.
- The maximum borrowing length for an overdraft against an FD is three years or the residual period, whichever is shorter.
- Fixed Deposit under the same name with a residual duration of up to three years. Tax-Saving/Capital Gains FDs are ineligible.
ICICI Bank Loan Against FD – Features
- Loans are available to both self-employed persons and third-party individuals (any individual or corporation).
- Loans are offered up to 90% of the Fixed deposit’s amount (maximum INR 500 lakhs).
- Disbursed as a Demand Loan or as an Overdraft against Deposit.
- Repayment will be made through either an adjustment to the Fixed Deposit or new remittances from outside India via normal banking channels.
- Loans can also be repaid using funds from the borrower’s NRO account.
- Loans to third parties can be repaid with funds from the borrower’s local rupee account.
Who can Apply for a Loan against FD?
Loan against fixed deposits is available to all fixed deposit holders, whether individual or joint accounts.
FDs held in the name of a minor are not eligible for this option.
This form of loan is not available to holders of a 5-year tax-free FD.
Documentation Required to Avail Loan Against Fixed Deposit
To obtain a loan against a fixed deposit, you must submit the following documents:
- You have to Submit the Duly signed application form
- Along with duly signed Agreement latter
- Fixed/Term Deposit receipts that have been properly discharged in favors of the bank
Please keep in mind that these may differ from lender to lender.
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How to get a loan against fixed deposit
When you open a fixed deposit account, you’re essentially depositing your money into the bank for a certain amount of time. You can get an interest on your deposit or use it as collateral to get a personal loan.
Let’s say you want to get a personal loan against your fixed deposit. Requesting this type of loan is simple; all you need to do is ask the bank about options and they will walk you through the process.
The first step is to find out what your interest rate is on your fixed deposit. If it’s higher than the interest rate offered by banks, then it might be wiser for you to get a loan instead. This way, you’ll end up with more money in the end!
Once that’s done, go talk to a financial advisor or banker at your branch and discuss the terms of the loan. If borrowing from yourself seems better than borrowing from a bank, then go ahead!
Features and Benefits of Loan Against FD
Loan against fixed deposit is a smart way to borrow money without having to sell your investments. You need to have a fixed deposit with the bank for at least 6 months and the amount of the loan should not exceed 90% of the FD.
The benefits of loans against fixed deposit are:
1) The money is still invested in the market and earning interest.
2) There is no need for collateral or any other security on your side.
3) The tenure can go up to 5 years, making it easy to repay monthly installments.
4) There is no need to prematurely break the FD and withdraw, resulting in a loss of interest on the FD.
5) There is no processing, Fee.
6) Available against both domestic and NRI FDs.
7) It can be repaid in full or in installments (not later than the FD tenure).
8) Loan repayment can be done on an OTC basis, if you don’t want to withdraw funds from your FD account every time you want to pay back the loan.
9) Interest rates on loans against fixed deposits are usually lower than personal loans offered by banks or other financial institutions (0.5% – 2% above the applicable FD rate).
Loan against fixed deposit disadvantages
Aside from the benefits, there are a few disadvantages to borrowing against a fixed deposit. Let’s have a look at those to get a better understanding.
- If you fail to repay your loan against a fixed deposit, the bank has the power to seize your fixed deposit and retrieve the money. As a result, you may lose the whole fixed deposit investment as well as the interest income.
- The term of your loan against fixed deposit cannot exceed the remaining term of your fixed deposit investment.
- If you are unsure about repaying the loan amount in the remaining tenor, you should consider breaking your fixed deposit investment.
Frequently Asked Questions (FAQ’s)
There are a number of reasons why you might choose to borrow money from your bank. For example, maybe you need to do some home renovations and the cost is too high for your budget. Or, maybe you want to go on a vacation and don’t have enough funds saved up.
A fixed deposit is an account with a bank that gives you a better interest rate than what you can get with a normal savings account and it is also an investment. It’s important to know the difference between the two loans so that you can decide which one is best for your needs.
When the amounts required are less than the monies stored in the FD, taking a loan against it is preferable than liquidating it.
Assume you have a 10-lakh FD but only need 3-4 lakh. A loan is a better alternative. The withdrawal of FD is subject to a penalty if done too soon. In many circumstances, taking out a loan would be less expensive than paying the fee, especially if the borrower can prepay it.
The repayment of the loan might be either lump amount or in installments. Foreclosure Charges – Banks do not normally apply any penalties or extra charges in the event of a loan on a Fixed Deposit being foreclosed.
The benefit of taking an OD instead of an FD is that you only pay interest on the amount you use from the OD, and the interest is computed daily.
Overdraft is a sort of credit offered by lending institutions. It enables the borrower to deposit monies in excess of the loan amount and withdraw funds as needed. The lender establishes an account with an overdraft limit for you.