Financial autonomy is the greatest concern in today’s fast-changing world. Whether for an unplanned bill, financing a home upgrade, or grabbing an investment opportunity, having easy access to money can be the deal-maker. For every Indian, fixed deposits (FDs) continue to be a favorite saving scheme because they are secure and guaranteed to return.
But did you know that your hard-earned fixed deposit can be utilized as a security to avail a loan so that you can get access to money without prematurity withdrawing from your FD? Your step-by-step one-stop solution on how to avail a loan against fixed deposit so that you can make use of your FD to meet unexpected financial needs is this blog.
We will also take a close look at the loan against FD interest rate, its benefits, eligibility criteria and important factors to consider. This content is tailored for Indian adults and is designed in a sharp, conversational, yet informative style – just like you’d find on an official Bajaj Finance blog. So let’s begin by understanding what a loan against FD is all about.
What is a loan against fd
Fixed deposit loan is nothing but a secured loan where your fixed deposit is being kept as security. While there are charges and interest depletion for pre-mature breaking of an FD, taking a loan against your FD helps you get liquidity without losing your FD.
If you avail a loan against FD, the finance company or bank advances you a percentage (typically 70% to 90%) of the fixed deposit amount. The loan period is typically 12 months to 36 months depending on the lender’s policies. Your fixed deposit continues to earn interest at the original rate, and thus your investment is not disturbed.
It is a convenient financial instrument for individuals who need money on short notice but do not want to miss the guaranteed interest of their fixed deposits. Loans against FD usually carry lower interest rates than unsecured personal loans, taking into account lower risk for lenders.
For example, in the State Bank of India (SBI), loans against time deposits can be taken at interest rates comparable to which depend on the interest rate on the deposit itself and range from 1-2% over the FD rate. This is an economic choice in terms of borrowing against personal loans that are regular.
In short, loan against FD assists you to meet short-term financial obligations with reduced rates of interest, flexibility, and minimal documentation.
Advantages of loan against fd
Though obtaining a loan against fixed deposit has several distinctive advantages which make it a favorable option in personal finance, the following are some of the key benefits that you should be aware of:
1. Lower rate of interest in contrast to personal loans
Since the loan is backed by your FD, banks consider it to be low risk. Hence, the interest rate for loan against FD is extremely nominal as against unsecured loans. It is around 8% – 10% annually, depending on banks and prevailing rates for FD. This saves your interest cost significantly in the long run.
2. Smooth and speedy approval
Banks and NBFCs are likely to sanction instant loan against FD since security is already with them. Documentation is minimal – identification proof, address proof, and the receipt of FD would be sufficient most of the time. That is ideal if you are short of money in a hurry without bureaucratic delays.
3. You don’t need to encash your FD
Your initial fixed deposit continues to gain interest at the initial agreed-upon rate when you’re repaying the loan. This puts the money in your pocket and allows you to gain maximum returns on your money.
4. Simple repayment terms
All the lenders offer easy repayment terms. You can choose EMIs or repay in lump sums at the end of the period without paying any penalty. These easy payment schedules encourage the borrowers to look for customized solutions.
5. No credit score impact
As opposed to defaulting on unsecured loans, a loan taken against FD covered by collateral will not stain your credit rating if you do not default. Repayment of the loan as per schedule can add points to your creditworthiness.
6. Retain ownership of FD
You retain the ownership of the FD with you as long as the loan is outstanding. You can still avail the facility of your deposit like income tax benefit if any.
In total, the loan against FD grants you a prudence-based borrowing facility with lesser trouble and lesser interest payment, thereby becoming a choice for the majority of Indians.
Eligibility criteria to avail loan against fd
Before opting for a loan against FD, it is wise to learn about bank and NBFC eligibility guidelines. These are made available to ensure smooth processing and rapid sanction. These are the overall parameters of eligibility:
1. Fixed deposit requirement
You must maintain a fixed deposit with a financial institution or a bank against which the loan is taken. The FD should have a minimum tenor period (normally a few months passed) and sufficient balance to cover the quantum of the loan.
2. Loan-to-value (LTV) ratio
All banks provide a facility for lending you 70%-90% of the value of your FD. Let’s assume you have an FD of Rs. 1,00,000. You can avail a loan of between Rs. 70,000 to Rs. 90,000 depending upon the institution’s policy.
3. Age requirements
The applicant’s age should typically be 18-65 years. This ensures the borrower possesses sufficient earning potential and repayment capability.
4. KYC compliance
You must submit suitable identity documents (Aadhar, PAN card, etc.) and address documents as per bank policy. KYC is required in all loan accounts.
5. Income documents (seldom)
Although loans against FD are secured loans, no lenders can ask for income documents to determine payment ability, especially for larger loans.
6. No employment restriction
Since the loan is against your FD, you, as a retired, salaried, and self-employed individual, are eligible. Minimum income slabs are generally not applicable.
7. Loan tenure caps
Your loan period will not be more than the tenor of your FD. It could be between 1 to 3 years depending on the length of tenure of your FD.
It is not a challenge for the greater majority of FD holders to fulfill the qualification requirements, and even banks are likely to provide sufficient information regarding documents and loan maximum amount limits.
Step-by-step process to get a loan against fd
It is extremely simple to take a loan against FD and is not a multi-step task. The below is the step-by-step process in detail to assist you:
Step 1: Check your fixed deposit amount and tenor
Check that you have a proper fixed deposit in hand with the bank/NBFC. Check the amount, tenure and maturity date. Choose the amount and loan period you want to borrow against your FD, keeping an eye on the loan-to-value ratio.
Step 2: Go to the bank/NBFC
Visit the bank branch or website at which your FD is held. Bajaj Finance and other similar NBFCs have easy loan application processes online and offline.
Step 3: Complete the loan application
Complete the loan application form with loan value, preferred tenure and send recent KYC documents such as address proof, identity proof and your FD receipt. Documentation for most instances is a breeze if your FD happens to be of the same bank.
Step 4: Processing and verification
Your FD details, identity, and eligibility criteria are verified by the lender. Since the FD is used as collateral, risk assessment is quick, hence the processing is quick.
Step 5: Loan sanction and disbursal
The bank sanctions the loan once it is sanctioned and deposits the amount to your savings account, usually within 24-48 hours. Sanctioned loan amount gets credited automatically if the process is online.
Step 6: Repayment as per terms
Repay the loan in EMIs or lumps. The repayment period shall be between a few months and the term of the FD. Interest charged will be based on the rate of interest applicable for loan against FD as defined by the lender.
Step 7: Closure and release of lien
When interest and principal are repaid in full, your lien or hold on fixed deposit is released automatically, and the FD matures.
By doing all these, you can take loans against FD without difficulties and access funds at a fast speed.
Understanding loan against fd interest rate
Interest on loan against FD is a significant aspect when availing a loan, which influences your total expense and EMI range. Below are the facts Indian borrowers must understand about such interest rates:
1. FD-linked interest rates
Banks prefer to give the loan at a rate of interest slightly above your FD rate of interest. For example, if the FD rate of interest is 6%, the rate of interest for loan against FD will be 7-8%. The marginal differential here compensates the lender for the credit and service risk.
2. Below competitive and unsecured loan rates
On the whole, the rate of interest on loan against FD in India is 7.5% to 10% annum depending upon the company lending the amount and the scenario prevailing in the market. Unsecured personal loans may fetch 10% to 18%. Thus, the loan against FD is cost as well as price-friendly.
3. Forms of rates of interest provided
Usually, the interest rate for loan against FD is fixed for the complete duration of the loan. This gives stability to your EMIs without worrying about rates fluctuating. Some banks offer floating repo rate-linked rates but it is not the norm.
4. Interest on reducing balance
Most banks incur interest on the reducing balance of the loan, i.e., interest cost decreases as you pay back the principal. This minimizes the overall load compared to flat-rate loans.
5. Other fees and charges
Even if the rate of interest is minimal, some banks can also levy processing fees or late payment fees. It is advisable to pay all the charges in advance before closing the loan.
6. Impact of tenure on interest
Longer tenors may imply a marginally higher total interest outgo even though EMIs are lower. Total cost decreases with smaller tenors but at the expense of increased EMIs. Choose tenure sensibly according to your paying capacity.
Know the loan against FD interest rate so that you can make the right choice and use the product to maximum usage for your purpose.
Things to remember while choosing loan against fd
Although loans against fixed deposits are handy and cheap, there are a couple of things to consider before jumping into it:
1. Loan size limit
Remember that the maximum loan that you may be interested in is up to FD limit. In case you need more than your FD limit, consider other sources for loans.
2. Effect on FD withdrawal
During the loan period, your FD is under lien and cannot be withdrawn before the date scheduled. Plan your emergencies and repayments accordingly.
3. Penalty or interest on premature withdrawal
Avoid withdrawing the FD prematurely to support spending as it is likely to incur penalty and low interest. Loan against FD avoids the loss.
4. Repayment discipline
Though loan against FD is lenient, repayment of EMI on time should be ensured. Failure to repay would result in recovery procedures and low credit score.
5. Tax implications
Interest earned on FD would be tax-deductible according to income slab, yet amount of loan taken is not taxable income. Consider tax advantage or additional costs before borrowing.
6. Compare offers
Different variable interest rates and terms are provided by different NBFCs and banks. Compare first and then sign. Bajaj Finance offers transparent and customer-centric loans available online.
7. Alignment with FD maturity tenure
Choose a loan tenure not later than your FD maturity to avoid trouble.
Being aware of these facts assures your loan against FD as per your financial need without any surprise.
Conclusion
A fixed deposit loan is a smart and cost-effective way for Indian adults to fulfill sudden or unexpected financial needs without disrupting the savings. It is less in terms of interest rates, lesser documentation, quick processing and flexibility in repayments. You earn interest on your initial deposit by taking the help of your FD and get instant funds.
Awareness of the eligibility, benefits, interest rates and procedure is crucial in an effort to make use of maximum potential of this financial tool. The interest rate of loan against FD is also competitive in the market place lowering borrowing cost significantly from unsecured loans. Indian banks as well as NBFCs like Bajaj Finance have excellent loan against FD facilities both online and offline.
If you already possess a fixed deposit, do not squander it and use it as collateral to realize aspirations in security and comfort. Apply now and enjoy the twin advantage of loan liquidity plus your FD investment safe.
