Thing To Keep In Mind Before Using Loan Against Fixed Deposit

Loan against fixed deposit is one very trending money product in India. It is a hassle-free way of topping up your funds without encashing your investment. Nevertheless, always it is advisable to have information about eligibility, benefit, rate of interest, and potential weakness.

This is a complete guidebook through which you can make the right decision. You will be highly aware of loan against fixed deposit eligibility, application, rate of interest, and repayment tenure. Information regarding these categories can help you to invest your fixed deposit correctly without harming your financial status.

What is a loan against fixed deposit

Fixed deposit loan is a secured loan in which you are using the security of your fixed deposit receipt. A bank or an NBFC advances a loan to the extent of a percentage of the fixed deposit. As the deposit has already been already pledged as security, the loan is approved very easily with not much documentation to be done.

This fixed deposit loan facility is highly sought after as the rate of interest is lower when you borrow money on loan by going for a credit card or unsecured loan. And your fixed deposit also will earn interest up to the loan duration whereas if you borrow money at an initial phase for meeting some urgent fund need, then you will be losing interest.

Loan against fixed deposit eligibility

You can avail a loan against fixed deposit with certain terms and conditions being imposed by the financier. These would generally be:

• FD tenure: Bank would generally keep the FD in suspense for 3 to 6 months before the same could be used by you as collateral to avail a loan.
• Depositor's age: Depoyer's age would need to be above 18 years as per most of the companies.
• Credit history: Since the loan is collateral based, even the lenders would be interested in knowing your credit history so that they can assess your overall credit worthiness.
• Minimum deposit: Minimum deposit terms might be present in some banks in the event of loan against fixed deposit.
• Resident status: Indian residents, or NRIs in rare circumstances in special situations, would be the usual applicants.

Keeping the loan against fixed deposit eligibility for ease of sanctioning and repayment tenor maximum. Contact your banker or finance company for information.

Advantages while availing a loan against fixed deposit

The application of a loan against fixed deposit has a few advantages, i.e.

• Low interest rate: Your FD interest rate instead of collateral is very low compared to credit card and personal loan.
• Instant approval: Low documentation and instant approval of your FD enable release of loan very early.
• No prepayment penalty: Prepayment of the loan prior to compulsory duration is penalty-free in most instances.
• Your fixed deposit remains safe and is accumulating interest until the loan tenure.
• Repayable amount of loan: You can draw generally 75-90% of your fixed deposit amount.
• Flexible tenor of facilities: The repayment tenors of loans would be typically 12 to 36 months as per your choice.

All these advantages make loan against fixed deposit a first preference facility in situations of requirement by reasons of compulsions of or needs for short-term funds.

How much loan you can get against your fixed deposit

The loan that you will be able to withdraw will largely depend on the amount of your fixed deposit. The banks will offer a loan of 75% to 90% of the deposit value. Suppose you have an FD of Rs. 1,00,000; you can expect a withdrawal of loan between Rs. 75,000 and Rs. 90,000.

Loan-to-value would be as per your bank tenor and bank policy fixed deposit. Higher tenor auto-approval would be for larger loan size. Sanction of loan in joint FD account can be mandated for all the depositors.

Loan against fixed deposit interest rate

Fixed deposit interest would typically be equal to the fixed deposit interest. Loan against fixed deposit interest would typically be 1-2% above the FD interest.

Assuming your fixed deposit is 6% interest per year. Interest on fixed deposit loan could be 7-8% per year. Extremely conservative compared to unsecured personal loans where it exceeds 12-15%.

Interest on the loan is returned monthly or quarterly depending on the lender's wish, and the loan is returned in EMIs or by the bullet payment at maturity of the loan.

Fixed deposit loan documents

Fixed deposit loan forms are easy and easy. They mostly:

• Receipt or fixed deposit certificate: You hold FD.
• Proof of identification: Electricity bill, Aadhaar card, passport, or voter ID card.
• Proof of address: Utility bills, Aadhaar, ration card, or passport.
• Bank statements: Current bank transaction valuation bank statements.
• Photographs: Passport photographs as identification by the lender.

Since the loan is secured against your own property, it is quicker in processing than unsecured loans and this typically amounts to same-day disbursal.

Risks and considerations prior to choosing loan against fixed deposit

Though comparatively less riskless and cheaper, loan against FD has certain drawbacks:

• FD lien risk: Bank lien on the FD, i.e., cannot withdraw or arrange withdrawal of the FD until the loan tenure.
• Default charges: In case of default in repayment of EMI of loan, your FD comes under recovery of dues process, which are chargeable or taxable in nature.
• Small loan amount: You are not in a position to get a ginormous size more than a percentage of your FD, hence enormous fund needs are avoided.
• Fluctuation in interest rate: Money organizations may change interest rates on your loans based on whether your FD rates of interest are changed or not, at varying rates of payment.

Plan your loan in a manner that you repay within the specified period so that there would not be any adverse effect.

Step-by-step process to avail loan against fixed deposit

It is simple process to avail loan against fixed deposit. You may do it by step-by-step procedure:

1. Your FD and eligibility: Verify your FD tenure and amount, and verify bank terms and conditions.
2. Bank or NBFC visit: Visit your bank branch or go through websites for submitting the application.
3. To be submitted: Submit receipt of FD, address proof and ID proof if required.
4. Lien agreement and signing on loan: Sign an authorization whereby the bank can cause lien on fixed deposit.
5. Use the loan: Your loan amount gets credited in your account within 24-48 hours, as usual.

Few banks like SBI, HDFC Bank, ICICI Bank, and Axis Bank provide this facility on differential customer terms and service. Your own bank's term check will make your fixed deposit loan facility most convenient.

Fixed deposit loan is a very profitable financial facility for the persons willing to take instant low-cost loans without losing their fixed deposit. Knowing the loan against fixed deposit advantage, eligibility, interest, and risk enables you to make best use of the facility in your interest.

Then compare your repayment ability and go to the bank and see whether you can take all of them. Fixed deposit loan is useful in order to have cash handy for the scenario of some unforeseen incident without affecting your investment and its return as well.

Fixed deposits of Indian borrowers are being enabled to be made available as collateral security for each rupee of collateral under the above terms, taking an amount on loan at their own risk without weakening their economic power.