A loan against fixed deposit is an efficient way of utilising the fixed deposit, as it is an alternative to prematurely breaking it. If you have a fixed deposit with a particular bank, you can opt for a loan against it, from the same bank.
The loan against fixed deposit is a secured loan where the FD acts as security against the loan. The amount of loan depends on the amount of the fixed deposit, and is usually about 80-90% of the value of the FD, while the exact percentage of loan varies from bank to bank.
Eligibility criteria to Get a Loan Against Fixed Deposit
In order to get a loan against fixed deposit, the following criteria must be met:
- Person applying for the loan must have a fixed deposit with the same bank
- Loan can be against any fixed deposit – individual or joint account holders
- The loan cannot be taken against a 5-year tax saving FD
The documents that have to be provided to get a loan against a fixed deposit usually vary from one bank to the other. But the basic documents required include-
- Signed application form available at the bank. The form for some banks is available online as well, while certain banks require you to visit the branch
- Fixed deposit receipts from the bank
Procedure to Apply for the Loan against FD
Get in touch with the bank where you hold the fixed deposit. Inquire about their loan against FD facility and gather information regarding interest rates, loan amount, and other terms and conditions.
- Obtain the loan application form from the bank or financial institution. You can usually find it at the branch or on their official website. Some banks may also offer the option to apply online.
- Submit the completed application form and supporting documents to the bank. Ensure that you have provided all the necessary information and double-check for any errors or omissions.
- The bank will review your application and assess the eligibility criteria. This may include verifying the details provided, checking the lien on the FD, and evaluating your repayment capacity. If your application meets the requirements, the loan will be approved.
- Once the loan is approved, the bank will disburse the loan amount to your designated bank account. Depending on the bank’s procedure, the funds may be credited to your account immediately or within a few working days.
Benefits of Getting a Loan against Fixed Deposit
- The loan against fixed deposit interest rate is lower in comparison to interest rates for other loans. One can expect a rate that is approximately 2-2.5% lower. The EMI payments on these loans are also cheaper.
- The paperwork required to take a loan against fixed deposit is minimal, as you already have an existing account with the bank and documentation for the FD.
- The bank does not evaluate the credit score before issuing a loan against fixed deposit, making it a good alternative for people with poor or no credit score.
- Loans against fixed deposits do not have any prepayment penalty. Alternatively, the bank profits from it as no interest has to be paid on the fixed deposit loan amount.
- No processing fees are charged
Also Read: How to Open a Fixed Deposit Account Online?
Disadvantages of Getting Loan Against Fixed Deposit
- The loan amount depends on the value of the fixed deposit. If you require a sum that is greater than the amount of the fixed deposit, then you will have to look for other lending options.
- In case of default on the loan against fixed deposit, the bank will foreclose the FD to recover the money, causing a loss of interest income along with the entire fixed deposit investment.
If you need to mobilise immediate funds and already have a fixed deposit with a bank, the best option is to take out a loan against the fixed deposit. The paperwork and interest rate of this kind of loan is lower in comparison to other loans, and no credit score is required either.