What is a Loan Against Fixed Deposit & How to Apply for it?

Often, when considering a safe investment option for our hard-earned money, FD or a fixed deposit is a top choice. It is the popular and widely trusted investment option. The highest FD interest rates, quick process, assured returns, and easy investment options have made fixed deposits appealing to many investors for years. Nevertheless, we must realise that a fixed deposit is far greater than an investment path.

When there is an emergency or sudden need for cash, we apply for loans in terms of different assets. However, do you know that your bank offers loans against fixed deposits? Yes, you can avail it.

You may pledge the fixed deposit as collateral and take a loan against it from your bank. Such a type of loan is a secured loan.

Here, we will be discussing a loan on FD, the benefits, and how to apply for it. 

Understanding Loan Against Fixed Deposit

If you need a loan in an emergency to save some money, then think further and consider the fixed deposit. A fixed deposit account always has one of the biggest advantages: a loan/overdraft facility. It is possible to access a term deposit loan by giving collateral. First of all, the banks charge a relatively lower rate of interest when compared to other forms of the loan. The bank disburses this loan as an overdraft, and meanwhile, the FD keeps earning the Highest FD Interest Rates. 

Loan against fixed deposit is where borrowers use their bank FDs as security or collateral to access funds immediately. Fixed deposits are widely used investment vehicles in which people invest an entire sum with a bank for a specific period and receive a fixed interest rate. Loan against FD enables individuals to borrow money conveniently without prematurely withdrawing fixed deposits.

Individuals applying for a Loan Against Fixed Deposit usually already have a fixed deposit with the bank they want to take a loan from. The loan amount shall be calculated based on a certain percentage of fixed deposit value so that the fixed deposit continues to earn interest but acts as security. The application process is strong, with less documentation than traditional loans. Generally, the borrower submits a simple application form and the fixed deposit details. After approval, the borrower gets the loan money instantly without any issues.

This financial instrument is beneficial because it allows people to take care of immediate cash requirements without cancelling out the advantages of their fixed deposit investments. It offers a convenient and economical option for temporary financial needs that provides flexibility and liquidity to those with fixed deposits.

Benefits Of Loan Against Fixed Deposit

1. Loan up to 70% to 90% :

So, the bank can offer you up to 70-90% of the loan amount against your fixed deposit. For example, you have Rs. 20 lakh as a fixed deposit. Therefore, you can obtain anything from Rs 14 lakhs to Rs 18 lakhs. However, the fixed deposit amount you have keeps earning interest as usual, and there is no deduction on it as it will only be applicable once you fail to pay the loan amount.

The sanctionable loan amount percentage varies from bank to bank.

2. Low interest rates :

The interest rate on loans taken against fixed deposits is significantly lower than what one would get with any other loan form.  It ranges from 2–3 per cent above the fixed deposit rate. In particular, if your bank gives 7.25% on the fixed deposit account, then you will pay up to 10% interest on the loan against FDs. This is quite lower than the interest rate that banks will levy on personal loans.

3. Flexible payment procedure :

Notably, the tenor of the loan based on a fixed deposit is similar to that of the fixed deposit. The loan repayment term can be shorter than the tenure of the fixed deposit but cannot exceed that period. For instance, in a Fixed Deposit with a five-year tenure, you have to pay the loan within that tenure and not exceed it.

4. Zero processing fee :

Getting a loan against fixed deposit is simple. No payment of an additional processing fee is necessary, as with other loans. It does so by diminishing the cost of the loan as a whole.

5. Hassle-free application process :

This is one of the most convenient types of loans. Because you become the fixed deposit account holder, documentation is minimal. The forms are mandatory, and you can also avail of the online facility to easily get a loan against the deposit. Also, you will be receiving the funds within 24 hours. 

6. No requirement to break fixed deposit :

Often, unfavourable events, emergencies and unexpected occasions may lead to several individuals rushing to break their fixed deposit accounts for urgent cash flow. But with the availability of loans against fixed deposits, you can get instant cash and let your hard-earned money earn interest. 

Steps To Apply For Loan Against Fixed Deposit

Getting a loan on a fixed deposit is easy, and you need to complete a few steps. These are as follows:

• Contact the bank where you have your fixed deposit. Ask about their loan against FD facility and collect information on the interest rates, loan amount, and other terms and conditions.
• Next, you can apply for the loan both online and offline. 
• If you want to proceed with the online application, you must visit your bank’s official net banking website. 
• After logging in, you can find the option of a loan against fixed deposit. After that, you will need to update some essential details. This includes selecting the FD account you wish to take a loan, the percentage of the loan you want to avail, and other details. 
• Once you submit all this information, getting the amount in your account will take 1-3 days.
• For offline, you must visit the branch, fill out the application, and do the needful. 

Conclusion

An emergency can arise at any moment, and you might need funds immediately to meet those situations. However, you don’t need to break your FDs as you can avail of the loan against fixed deposit option. The paperwork and interest for this loan are quite low when compared to other loans, and there is no need to worry about credit scores. To know more about such benefits of FDs, get in touch with Wint Wealth, the investment planning experts for all your needs.