What is Loan against Fixed Deposits (FDs)?
A fixed deposit (FD) is the financial instrument used by every investor. Fixed deposits are popular because of two main reasons: (1) safety of capital and (2) surety of returns. We can take now loan against Fixed Deposit without a break of our FDs. There are no credit score criteria, you do not meet the income eligibility criteria, or if you have no other assets to pledge.
The interest rate on loan against FD range between 1% and 2% above the FD rate and can be repaid in up to 60 months. loans against FD are usually given in the form of an overdraft or demand loan.
Features & Advantages of Loan Against Fixed Deposit
Lower interest rates on loan against FDs
The interest rate charged on loan against FD is lower. The interest rates on loans against FD are 1-2% more than of your fixed deposit rate.
Example: If your FD rate is 8% per year and you take a loan against FD then your interest rate would be 10-% if your bank charge 2% more than
- Application form
- Fixed Deposit receipts.
No credit score check –
When you apply for any kind of loan, banks will have a look at your credit score before they offer you a loan. But CIBIL checks not done in case of loan against fixed deposits.
The loan amount will depend on the FD amount –
Banks can offer up to 90% of the value of your fixed deposit, it’s very bank to bank.
Example: If you have fixed deposit of Rs. 10 Lac in XYZ bank and bank offer 90% of the value of your fixed deposit then your eligible loan amount Rs. 9 Lac.
No prepayment penalty–
There are no prepayment charges in this loan if you close the loan before completion of tenure.
Zero Processing Fees :
There are no processing fees for a loan against fixed deposit.
Both Demand loan and overdraft facility available :
The benefit of taking loan against fixed deposit is that we can take loan in the form of overdraft. Interest will be charged only for utilized amount another hand in personal loan interest charged on full loan amount once the loan disbursed.
Eligibility Criteria for Availing Loan Against Fixed Deposit
For taking a loan against FD, you must hold a fixed deposit with the bank. Loan can be taken by individual or firms. below are eligible to take a loan against fixed deposit :
- Resident Indian citizens
- Family Trusts
- Hindu Undivided Family (HUF)
- Clubs, societies, and associations
- Sole proprietorships, group companies, and partnership firms
Loan against Fixed Deposit vs. personal loan which is best?
If you have fixed deposit in your bank and you need of funds then definitely loan against fixed deposit is the best option because of low-interest rate and no other charges.
Please refer below benefit of taking a loan against fixed deposit against personal loan :
|Particular||Fixed Deposit||Personal loan|
|Rate of interest of loan:||Rate of interest is more than 1-2% of your FD Rate||In personal loan Rate of interest are range between 14-25% which is higher than loan against FD|
|Loan amount limit:||loan limit up to 90% of your FD value.||The loan amount depends on your credit score, income and other criteria on banks.|
|Documents required for loan:||Very limited documents are required to take a loan against FD and if you take through your net banking then no document required||To avail personal loan you have to submit many documents to banks like Bank loan application form, identity proof, address proof, income proof, bank statement, photograph and other documents required by banks.|
|Tenure of the loan:||The maximum tenure of loan against fixed deposit should not be more than the maturity time of the fixed deposit.||Maximum tenure in a personal loan is 60 months|
|Processing fee:||No processing fee will be charged on loan against FD||Processing fees will vary bank to bank and it range between 0.5 to 2%.|
|Prepayment charges against loan:||No prepayment charges are charged by banks.||Banks are charged prepayment charges on a personal loan and it varies bank to bank, generally, banks are charged prepayment charges between 2 to 8 %.|
What is the rate of interest on Loan against Fixed Deposit?
Rate of Interest on Loan against fixed deposit varies bank to bank, in general, it is more than 1-2% of your FD rate. Suppose your FD rate is 7% and bank charge 2% on above FD rate then the interest rate on your loan against FD will be 9%.
We have a detailed analysis of loan against FD, this is good for people who have FD in a bank and don’t want to break FD for current cash crunch. there are lots of befits of loan against FD are i.e low-interest rate, low documentation and no income criteria applicable.
One of the best features of loan against FD is that it is also given in form on overdraft facility which can be used as working capital, interest is charged only for the utilized amount.
Thanks for reading ….
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