If a financial situation runs out of hand, most people look for reliable funding options such as loans and other options. And one of the sources that help in such a situation is taking a loan against a Fixed Deposit.
We are sure you have heard about it. If not, let us guide you through this blog and “Know More About Loan against Fixed Deposit – Eligibility, & Features.”
A loan against FD is quite beneficial because it is time-efficient and a short-term loan offered by several financial institutions. This loan option also saves you from breaking premature fixed deposits. Because if you take out the money from a fixed deposit account prematurely, you have to pay a penalty, eventually decreasing your overall amount. Therefore, a loan against fixed deposit is a better option.
Apart from the above advantage, you can use a credit card against your FD. Several banks offer this option, but that’s a different day story.
Let’s focus, explore, and learn more about a loan against Fixed Deposit.
What is Loan Against Fixed Deposit (FD)?
A secure, safe, and reliable loan where customers will offer their fixed deposit as a guarantee of repaying the loan against the fixed deposit principal amount. The amount depends on the customers’ main fixed deposit amount. Several banks offer customers to take up to 95% of the deposit amount, and some offer only a minimum amount or 85% of the total deposit amount.
What are the pros and cons of a Loan Against Fixed Deposit?
Here, we have mentioned every advantage and disadvantage of a loan against fixed deposit.
Loan Against Fixed Deposit Advantage:-
Low-interest rate
The loan against fixed deposit is available at lower interest.
No extra fee
Several banks don’t charge anything in the name of a processing fee. And some banks charge a small amount compared to several other loan fees.
Hassle-free process
The processing of loans against fixed deposits is stress-free. It requires very minimal paperwork. Less paperwork is required because your bank already has almost all your documents.
No need to break the FD
Getting a loan against a fixed deposit is easy therefore, there is no need to break your FD.
No maximum credit score is required
The biggest benefit of applying for a loan against the fixed deposit is that there is no checking for the credit score. You can have a zero, minimum, or maximum credit score and still get the loan against the fixed deposit account.
Loan Against Fixed Deposit Disadvantages:-
The following are a few loan against fixed deposit disadvantages to keep in mind:-
- If the borrower is not able to repay the loan he or she applied for against the fixed deposit, then the bank has every power to recover the amount from the fixed deposit account’s amount.
- The time period for paying the loan cannot exceed the time left for the fixed deposit to mature.
What are the key features and benefits of a loan against fixed deposit?
Loan against fixed deposit is a great idea as it has beneficial key features, especially for long-run fixed deposits.
Minimum paperwork Required –
Any bank in which you have a fixed deposit account will require minimal information while you apply for the loan against FD. Therefore, there is always the requirement for minimum paperwork. Also, you don’t have to submit documents like an income tax return, income proofs, etc.
No Checking of credit score –
Whenever an individual applies for any loan, the lender (bank or person) always checks the credit score before processing the loan. However, if an individual is applying for a loan against a fixed deposit, your CIBIL or credit score will not be considered while processing a loan. Therefore, this loan against FD is a good option for individuals with low or zero credit scores.
Low-interest rates –
Fixed deposit accounts work as security when getting a loan. Also, the loan against FD interest rates is lower in such loans. The loan against FD interest rates is around 2% to 3% lower than the interest rate the banks offer on personal loans. Therefore, the EMIs (Equated Monthly Instalments) on the loans against fixed deposits are also low.
Loan amount as per the FD fund –
If you want to apply for a personal loan, the maximum amount you can ask for will depend on several factors, like your credit score, income slab, ITR, and many others. But if you are applying for a loan against the fixed deposit, the maximum loan you can apply for depends on the principal amount you invested in your fixed deposit account. Therefore, if you have invested a huge amount in your FD, you are eligible for a loan of a big amount.
No penalty for prepayment –
In normal instances, when you prepay any loan, the banks lose a portion of interest and hence charge a penalty for the same reason. Nonetheless, in the case of a loan against FD, there is no penalty for prepayment as banks do not lose a portion of interest. The other reason they don’t charge is that they profit from prepayment and don’t have to pay any extra interest on the loan principal amount.
Top Banks Offering Loans Against Fixed Deposit
The following table below illustrates the loan limit and loan against FD interest rate of top banks in India. Choose the best bank offering a loan against fixed deposit according to your requirement.
|
Bank Name |
Loan Limit |
Interest Rate |
Loan Amount |
|
Axis Bank |
About 85% |
Fixed Deposit Interest Rate + 2% |
Rs. 25,000 onwards |
|
Punjab National Bank |
About 90% |
Fixed Deposit Interest Rate + 1% |
About 90% of the FD |
|
State Bank of India |
About 90% |
Fixed Deposit Interest Rate + 1% |
Rs. 25,000 to Rs. 5 crores |
|
HDFC Bank |
Minimal Rs. 25,000 |
Fixed Deposit Interest Rate + 2% |
About 90% of the FD |
|
Bank of Baroda |
About 95% |
Fixed Deposit Interest Rate + 1% |
Rs. 25,000 minimum |
|
Citi Bank |
About 90% |
Fixed Deposit Interest Rate + 1%-2% |
About 90% of the FD |
|
ICICI Bank |
About 90% |
Fixed Deposit Interest Rate + 2%-3% |
About 90% of the FD |
|
Kotak Mahindra Bank |
About 85% |
Fixed Deposit Interest Rate + 2%-3% |
About 90% of the FD |
|
Canara Bank |
About 90% |
Fixed Deposit Interest Rate + 2%-2.5% |
About 90% of the FD |
|
Yes Bank |
About 90% |
Fixed Deposit Interest Rate + 1% |
About 90% of the FD |
What is the eligibility criteria for loan against FD?
To be eligible for applying for the loan against FD, the most basic criterion is that you must have a fixed deposit account in that bank. You can only apply for a loan against FD in the same bank. Here are other primary criteria:-
- One must be an Indian resident.
- It can be opened in the name of a family trust.
- It can be opened by Hindu Undivided Family.
- By any club or society.
- By the sole proprietorships, different companies, partnership firms, etc.
- The loan against fixed deposit is available for all the fixed deposit account holders or joint account holders.
- Investors with a five-year tax-saving fixed deposit account are not applicable for this loan.
- A fixed deposit account under the name of a minor is also not applicable.
What are the documents required to apply for a loan against fixed deposit?
Anyone can apply for a loan against fixed deposit by providing the following documents:-
- A completely filled application form signed by you.
- An appropriately signed agreement.
- Fixed and term deposit receipts that are properly executed with the approval of the bank.
Note: Also, the document requirement may vary from bank to bank.
Credit Card against Fixed Deposit – An Alternative to Loan against FD
For those having trouble obtaining a credit card due to issues like a poor credit history, a credit card against FD is the best option. An insured credit card is one that is protected by a fixed deposit. To be eligible for a credit card against fixed deposit, you must first have an FD account.
Along with guaranteed yields, variable tenure possibilities, liquidity, income tax savings, and loan alternatives, fixed deposits also give investors the ability to use a credit card against FD.
With a credit limit typically 75% to 85% of the FD value, a credit card issued against a fixed deposit is a secured loan alternative.
SBI Unnati and Kotak Aqua Gold credit cards are available from numerous banks. But, in order to open one of these credit cards, you must deposit a minimum of Rs 25,000.
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Frequently Asked Questions (FAQ’s)
How Much Interest Rate is Charged if a Loan is Taken Against FD?
Around 0.55% – 2% rate of interest is chargeable above the current fixed deposit interest rates by banks and NBFCs if a loan against FD is taken. The interest rate may vary from one bank to another.
Are Senior Citizens Eligible for a Loan Against FD?
Yes, senior citizens are eligible for applying for a loan against Fixed Deposit. Even anyone is eligible if they have an FD account in the bank and are not minors.
Are There any Charges to be Paid for the Loan Against FD?
No, there are no charges that you have to pay for a loan against FD. You don’t even have to pay the processing fee. However, loans against FD interest rates are usually high (between 2% to 3%).
What are the Documents Needed for applying for a loan against Fixed Deposit?
An individual has to submit an application form, FD receipt, RSC and cancelled cheque for non-cumulative FDs, etc. The list of required documents may vary depending on the bank you have your Fixed Deposit in.
How much percent of loan an individual can get against their Fixed Deposit amount?
The first fact, all depends upon your bank. And, second, an individual can get up to 95% of the fixed deposit amount.
What is the period to pay the loan taken against FD?
One can repay the loan against Fixed Deposit before the fixed deposit matures. And, under any situation, it is forbidden to expand the tenure of the FD (against which you have taken the loan.).
What do you understand about FD lien?
Lien is the charge created by the banks so that they can get the claims over the deposit automatically. And, Fixed Deposit Lien is practised by every bank.
