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About Loan Against Fixed Deposit

Whenever we want to invest our surplus money, the first thing that comes to our mind is fixed deposit. One of the most traditional investment products, fixed deposit, is extremely popular and trusted amongst investors. The hassle-free process, guaranteed returns, and ease of investment makes has attracted many investors towards Fixed Deposit since ages. However, what we do not know is that fixed deposit is much more than just an investment avenue.

If there is an emergency or sudden requirement of cash, we seek loans against various assets. But do you know that you can also avail loan against fixed deposit?

You can pledge your fixed deposit as collateral and avail loan against it from your bank. Loan against fixed deposit is a secured loan in nature.

If you are looking for a loan to meet some financial emergency, look no further and consider your fixed deposit. The loan/overdraft facility is one of the biggest advantages of a fixed deposit account. You can avail loan against a term deposit by pledging as collateral. Not just this, the banks charge comparatively lesser rate of interest than the other forms of loan. This loan is mainly disbursed by the bank in the form of an overdraft.

Loan Against Fixed Deposit
Loan Against Fixed Deposit

Benefits of Loan Against Fixed Deposit

  • Loan amount up to 70% to 90% :
  • You can avail about 70% to 90% of your fixed deposit value as a loan. Let us say you have a fixed deposit for Rs.10 lakhs, so you can avail anything in the range of Rs 7 lakhs to Rs 9 lakhs. The remaining amount which remains in the fixed deposit account even after the loan is sanctioned will continue to earn the interest. The loan amount to be sanctioned varies across banks.

  • Low interest rates :
  • The rate of interest for loans against the fixed deposit is much lower than that of other loan forms. Let us say that it is just 2% to 3% higher than the fixed deposit rate. For example, if your bank offers 9.25% on the fixed deposit account, you will have to pay an interest rate of 11.25% on your loan against the FD. This is way below the average interest rate that banks would charge you on personal loans.

  • Flexible payment procedure :
  • One very important point to be noted is that the tenure of the loan against fixed deposit is the same as that of the fixed deposit itself. While the tenure of the loan can be less than the fixed deposit, it cannot exceed the tenure of the deposit. For example, if the tenure of the Fixed Deposit is 5 years, the loan can be either less than or equal to 5 years but not more than that.

  • Zero processing fee :
  • This kind of loan is straightforward. There is no requirement of any additional processing fee to be paid as it is the case with other loans. This, in turn, reduces the overall cost of the loan.

  • Hassle-free application process :
  • This is one sort of loan which is extremely hassle-free. Since you are already the fixed deposit account holder, there is very less documentation involved. You only need to fill up the mandatory forms and there also an option of opting for a loan against fixed deposit online.

  • No requirement to break fixed deposit : 
  • Many a time unfortunate events, emergencies and sudden developments may prompt many to break their fixed deposit accounts for immediate cash flow. However, with the option to avail loan against the fixed deposit, you can keep your deposit intact while addressing your immediate cash needs.

Features of Loan Against Fixed Deposit

  • All customers, single as well as joint account holders are eligible to avail loan against fixed deposit
  • You can avail a loan of up to 70% to 90% of the deposit amount
  • The existing fixed deposit acts as the collateral
  • The repayment period should not exceed the tenure of the fixed deposit
  • The loan is treated as a demand or overdraft
  • You can apply through Internet banking or by visiting your nearest bank branches
  • There is no processing fee required for this loan.
  • The interest rate is around 2% to 3% higher than the fixed deposit rate in most cases

How to apply for a loan against fixed deposit online?

  • Log onto your internet banking account with your user id and password
  • Go to the fixed deposit section and select overdraft facility against FD
  • Provide the relevant details such as the amount of loan required, tenure etc.
  • The approval process of the loan is online, and you will get the notification via email and SMS.

What are documents required for a loan against fixed deposit?

  • A duly filled in Application form
  • Receipt of the fixed deposit
  • For non-cumulative FD, an ECS mandate is required
  • For non-cumulative FD, a cancelled cheque is required

What are the eligibility criteria for availing loan against fixed deposit?

  • Resident citizens of India
  • Hindu Undivided Family (HUF)
  • Sole proprietorships, partnership firms, and companies including group companies
  • Clubs, associations, and societies
  • Family trusts
  • There are many banks in India that offer this facility which offers this facility to Non-resident Indians.
  • Non-Resident Indians (NRIs) who have invested in term deposits such as Non-Resident External (NRE), Non-Resident Ordinary (NRO), and Foreign Currency Non-Repatriable (FCNR) deposits, are also eligible to apply for a loan against their respective fixed deposits.

Frequently Asked Questions: Loan Against Fixed Deposit

1. What is the amount that I can borrow against a fixed deposit?

Banks usually can avail 70%-90% of the fixed deposit as a loan.

2. What will be the tenure of my loan?

The loan against fixed deposit can be sanctioned for a tenure which is the same as or less than the tenure of the fixed deposit.

3. What will be the rate of interest that I need to pay?

The interest rate of the loan is based on the interest rate that the bank is offering you on fixed deposit. Most of the banks offer a rate of 2% to 3% more than the fixed deposit rate.

4. Are non-resident Indians allowed to avail a loan against fixed deposit?

Most of the banks in India now allow loans against fixed deposit facility to the NRIs, NREs, NROs, and FNCR as well.

5. What is the processing fee required for the loan against fixed deposit?

There is no processing fee required for a loan against the fixed deposit.

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