Introduction
In India, Fixed Deposits (FDs) are a popular savings instrument due to their assured returns and low risk. However, during financial emergencies, breaking an FD might not be the best option as it results in the loss of interest earned. Instead, a loan against an FD can be a practical solution. This guide explains how to get a loan against an FD.
What is a Loan Against Fixed Deposit (FD)?
A loan against FD allows you to borrow money using your fixed deposit as collateral. This type of loan is a secured loan, meaning the FD acts as security, ensuring lower interest rates compared to unsecured loans. The loan amount can go up to 90% of the FD value, depending on the bank's policies.
Who Can Apply for a Loan Against FD:
To apply for a loan against an FD in India, you must have an existing fixed deposit with the bank or financial institution. Eligible applicants include:
Individuals with personal FDs
Joint account holders with FDs
Sole proprietorships, partnership firms, and companies
Associations, clubs, societies, and family trusts
Note: Tax-saving FDs and FDs in the name of minors are not eligible for this type of loan.
Features and Benefits of a Loan Against FD:
No Penalty for Pre-Payment
One of the key benefits is that there is no pre-payment penalty. You can repay the loan before the due date without incurring extra charges, allowing flexibility in managing your finances.
Minimal Documentation
Since the bank already holds your FD, the documentation process is minimal. You typically need to submit your FD receipt and basic identification documents along with the loan application.
Lower Interest Rates
The interest rates on loans against FDs are lower than those on personal loans because the FD serves as collateral. This results in more affordable Equated Monthly Installments (EMIs).
No Credit Score Checks
Your credit score is not a primary factor in determining your eligibility for a loan against an FD. This makes it an ideal option for individuals with lower credit scores who need funds.
How to Apply for a Loan Against Fixed Deposit:
Visit the Bank’s Website or Branch: Access the website of the bank where you have your FD or visit the nearest branch.
Locate the Loan Section: Find the section related to loans or fixed deposits.
Apply for Overdraft/Loan: Select the option to apply for an overdraft or loan against your FD.
Provide Necessary Details: Enter details such as the FD number, loan amount required, and tenure.
Submit Application: Complete the application process online or submit it at the bank. You will receive confirmation via SMS or email.
What is an Overdraft Facility?
An overdraft facility against an FD, also known as OD against FD, allows you to withdraw funds beyond your account balance up to a certain limit. The interest is charged only on the amount utilized, not on the entire overdraft limit.
Example of OD Against FD:
If you have an FD worth ₹1.5 lakh with an 85% OD limit, you can borrow up to ₹1.275 lakh. If you utilize ₹75,000, interest is charged only on that amount, not the entire limit.
Conclusion
A loan against an FD is a smart way to manage financial emergencies without breaking your fixed deposit. With benefits like lower interest rates, minimal documentation, and no credit score checks, it provides a secure and cost-effective borrowing option. Understanding the features and process can help you make the most of this facility while keeping your savings intact.
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