Taking A Loan Against Fixed Deposit? Your Complete Guide is Here

A loan against a fixed deposit is a smart way to use your fixed deposit without withdrawing it early. Instead of breaking your fixed deposit, you can choose to get a loan from the same bank where you have the deposit. This type of loan is secure because your fixed deposit acts as collateral. Typically, you can borrow around 80-90% of the value of your fixed deposit, although the exact percentage may vary among banks. It’s a convenient and efficient way to access funds while benefiting from the interest earned on your fixed deposit.

Eligibility Criteria to Get a Loan Against Fixed Deposit

• Eligible Individuals: Resident individuals who are over 18 years of age can apply for a loan against a fixed deposit. However, this loan facility is not available for foreign citizens, persons of Indian origin, or NRIs.
• Hindu Undivided Family (HUF): HUFs can also qualify for a loan against a fixed deposit.
• Sole Proprietorship and Partnership Firms: Both sole proprietorships and partnership firms are eligible to apply for this type of loan.

It is important to note that certain restrictions apply when availing a loan against a fixed deposit. These include:

• Minor’s Fixed Deposit: Loans cannot be availed against fixed deposits held in the name of a minor.
• Attachment/Garnishee Notice*: Fixed deposits that have received an attachment or garnishee notice cannot be used as collateral for a loan.
• Lien Marked* for Other Loans: Fixed deposits that have a lien marked for other loans are not eligible for a loan against the deposit.
• *Garnishee Notice: A court order that allows a creditor to collect a debt directly from a third party who owes money to the debtor.
• *Lien Marked: A legal claim or encumbrance on an asset, such as a fixed deposit, which prevents it from being used as collateral for another loan or debt.

Note: These criteria may vary depending on the bank or financial institution. It is always advisable to check with your specific bank for their exact eligibility criteria and terms for obtaining a loan against a fixed deposit.

Documents Required Loan Against Fixed Deposit

The documents required for obtaining a loan against a fixed deposit may vary from one bank to another. While some banks may not require any additional documents, others may have specific requirements. It is advisable to check with the bank where the fixed deposit is held to determine the exact documentation needed for availing a loan against it.

Benefits of Getting a Loan Against Fixed Deposit

Here are the benefits of obtaining a loan against a fixed deposit, explained in an easy-to-understand manner:

• Easy approval process: Getting a loan against your fixed deposit is quick and simple because the bank already has your deposit as security.
• Lower interest rates: The loan comes with a lower interest rate compared to other types of loans, which means you pay less money as interest.
• Retain fixed deposit benefits: Your fixed deposit continues to earn interest even while it is being used as collateral for the loan, so you can still benefit from its growth.
• No prepayment penalties: If you decide to pay back the loan earlier than expected, you won’t be charged any extra fees.
• No impact on credit score: Taking a loan against your fixed deposit doesn’t affect your credit score or history, so it won’t negatively impact your creditworthiness.
• Flexible loan amounts: You can borrow a portion of your fixed deposit value as a loan, giving you the flexibility to access the funds you need while still keeping some savings intact.

Also Read: How to Open a Fixed Deposit Account Online?

Key Points to Know Before Taking a Loan Against a Fixed Deposit

• Understand the maximum loan amount you can borrow against your fixed deposit.
• Know the interest rate associated with the loan and compare it with other options.
• Be aware that the fixed deposit will be pledged as collateral and cannot be withdrawn until the loan is repaid.
• There maybe processing charges included, so check with your bank.
• You may face penalty on late payment of EMIs
• Familiarize yourself with the repayment terms, including installment amounts and frequency.
• Check for any prepayment penalties or restrictions if you plan to repay the loan early.
• Consider the risks involved, such as potential loss of interest earnings on the fixed deposit.
• Evaluate alternative loan options and compare their terms and benefits.
• Assess your overall financial situation and ensure the loan aligns with your goals.
• Seek advice from a financial advisor or consult with your bank for clarity on loan terms.
• Understand the implications of taking the loan on your financial well-being.

Read More: Short Term FD Vs Long Term FD

In conclusion, if you require immediate funds and already have a fixed deposit with a bank, taking a loan against it is a great option. This type of loan offers lower interest rates and minimal paperwork compared to other loans. Additionally, the loan does not require a credit score, making it accessible to a wider range of individuals. It provides a convenient and efficient way to mobilize funds while leveraging the security of your fixed deposit.