Benefits of Loan Against Fixed Deposit- A Comprehensive Guide

byjitendra7.singhLast Updated: March 13, 2024
Best Recurring Deposit Interest Rates in India
Best Recurring Deposit Interest Rates in India

Fixed deposits (FDs) are a popular investment choice due to their safety, guaranteed returns, and ease of investment. However, many are unaware that FDs can also serve as a financial lifeline during emergencies by providing loans against the deposit. This comprehensive blog will explore the advantages of obtaining a loan using your fixed deposit (FD), offering a detailed guide for all readers.

What is a Loan Against Fixed Deposit?

A loan against a fixed deposit (FD) is a secured loan option where you offer your fixed deposit as collateral. It is a form of overdraft facility; a credit line extended to you against your fixed deposit. It allows you to borrow money up to a certain limit without breaking your FD. This facility is instrumental during financial emergencies when you need immediate access to funds.

During times of financial need, you have the option to utilize the issuer’s overdraft facility to borrow against the funds that you have deposited. The maximum loan amount available to you is determined by the lender and can potentially reach up to 90% of your fixed deposit balance.

However, it’s important to note that the interest rate charged on the overdraft is typically higher than the interest rate earned on your FD. The key point to remember here is that the interest is only charged on the amount you withdraw, not the entire overdraft limit. This can make an overdraft facility a cost-effective option for short-term borrowing.

Benefits of Loan Against Fixed Deposit

  1. High Loan Amount

One of the advantages of taking a loan against a fixed deposit is the high loan amount available. Typically, you can borrow around 70% to 90% of the value of your fixed deposit. For example, if you have a fixed deposit of Rs.10 lakh, you can access funds ranging from Rs.7 lakh to Rs.9 lakh, while the remaining amount in your fixed deposit account continues to earn interest.

  1. Low Interest Rate

Another benefit is the low interest rate associated with these loans. The interest rate for loans against fixed deposits is usually only 2% to 3% higher than the fixed deposit rate, making it an attractive borrowing option compared to other forms of loans. This is lower than the average interest rate that banks would charge you on personal loans.

  1. Flexible Payment Procedure

The duration of the loan tied to a fixed deposit is identical to that of the fixed deposit itself. Although the loan duration can be shorter than the fixed deposit period, it cannot surpass the deposit’s tenure.

  1. Zero Processing Fee

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

  1. Hassle-free Application Process

Since you are already a fixed deposit account holder, there is significantly lesser documentation involved. As an account holder, you only need to fill out the mandatory forms. Additionally, there is also an option for a loan against a fixed deposit online.

  1. No Requirement to Break Fixed Deposit

Unfortunate events, emergencies, and sudden developments may prompt many fixed deposit holders to break their fixed deposit accounts for immediate cash flow. However, with the option to avail of a loan against the fixed deposit, you can keep your deposit intact while addressing your immediate cash needs.

Eligibility Criteria for Availing Loan Against Fixed Deposit

The following entities are eligible for this loan:

  • Resident Indian citizens
  • Individuals and joint fixed deposit account holders
  • Hindu Undivided Family (HUF)
  • Family trusts
  • Sole proprietorships, partnership firms, and group companies
  • Clubs, associations, and societies

How to Apply for a Loan Against Fixed Deposit Online

  • Access the issuer’s website and log in
  • Navigate to the ‘Fixed Deposit’ section
  • Choose the option for ‘Overdraft Facility against FD.’
  • Enter the necessary information, including the desired loan amount and tenor

Read More: Taking A Loan Against Fixed Deposit

Documents Needed for a Loan Against Fixed Deposit

  • Loan application signed for a fixed deposit
  • Fixed deposit receipt
  • Standing instructions given to the bank, if applicable

Advantages over Other Types of Loans

Loans against fixed deposits have several advantages over other types of loans:

  1. No Credit Score Check

Due to the collateralization of your FD, lenders generally do not conduct credit score evaluations. This makes it an excellent option for those with a low credit score or no credit history.

  1. Quick Disbursal

The loan approval and disbursal process is usually quick as the bank already holds your FD as collateral. This can be particularly beneficial in case of emergencies when you need funds immediately.

  1. No Prepayment Penalty

Most banks do not charge any prepayment penalty for loans against FD. This means you can close the loan before schedule without incurring additional charges.

Also Read: When & How to Pay Income Tax on Fixed Deposit’s Interest Income

Repayment Process for Loan Against Fixed Deposit

The repayment of a loan against FD is relatively easy. Depending on your financial circumstances and the loan agreement, you can choose to repay the loan either in a single payment or in smaller, regular payments. This offers you the freedom to adapt your repayment method to your specific needs. However, it’s crucial to ensure that the loan is fully repaid before your FD matures. In the event of a default on the loan repayment, the lender (bank or NBFC) retains the authority to liquidate your Fixed Deposit (FD) in order to recuperate the remaining loan balance. The specific repayment terms, including the schedule and any penalties for late payment, are at the lender’s discretion.

Final Words

A loan against FD can be a valuable tool to meet your immediate financial needs without breaking your investment. However, like any financial decision, it’s important to understand the pros and cons and consider your financial situation before proceeding. Always read the terms and conditions carefully and consider seeking advice from a financial advisor if needed.


What is a Loan Against Fixed Deposit (FD)?

A Loan Against Fixed Deposit is a type of loan offered by banks and financial institutions, where individuals can borrow money against the value of their fixed deposit account. The fixed deposit acts as collateral, providing security to the lender, and the borrower can access funds without breaking the FD prematurely.

How does a Loan Against Fixed Deposit work?

When you apply for a Loan Against Fixed Deposit, the lender will assess the FD’s value and offer you a loan amount typically up to 90% of the FD value. The FD remains intact, and you continue to earn interest on it. You repay the loan in EMIs, and once the loan is fully repaid, you regain complete access to the FD.

Can I close my Fixed Deposit before the loan tenure ends?

Yes, you can choose to pre-close the Fixed Deposit before the loan tenure ends. In such cases, the lender may levy a pre-closure penalty, which could impact the overall interest earned on the FD.

Is the interest rate fixed for the entire loan tenure?

The interest rate for a Loan Against Fixed Deposit is usually fixed for the entire loan tenure, providing stability to borrowers regarding repayment planning.

Can I get a Loan Against Fixed Deposit from any bank?

No, you can only get a Loan Against Fixed Deposit from the bank where you hold the FD. The loan is linked to the specific FD account.

What happens if I default on the loan repayment?

If you default on the loan repayment, the lender has the right to recover the outstanding amount by breaking the FD and using the proceeds to settle the debt. Any remaining funds will be returned to you.

Can I get a loan amount higher than my Fixed Deposit value?

In most cases, the loan amount is limited to a percentage (usually up to 90%) of the FD value. It cannot exceed the FD amount since the FD itself acts as collateral.

Can I apply for multiple loans against different Fixed Deposits?

Yes, you can apply for multiple loans against different Fixed Deposits held at the same or different banks, provided you meet the eligibility criteria for each loan.

What is the processing time for a Loan Against Fixed Deposit?

The processing time is usually quick as there is minimal documentation involved, and the FD acts as collateral, reducing the need for extensive credit checks.

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