Trusted by 1L+ Indians
Want to Achieve any of the below Goals upto 80% faster?
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Trusted by 1L+ Indians
Want to Achieve any of the below Goals upto 80% faster?
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Trusted by 3 Crore+ Indians
Want to Achieve any of the below
Goals upto 80% faster?
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Trusted by 3 Crore+ Indians
Want to Achieve any of the below
Goals upto 80% faster?
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Trusted by 3 Crore+ Indians
Want to Achieve any of the below Goals upto 80% faster?
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Trusted by 3 Crore+ Indians
Want to Achieve any of the below Goals upto 80% faster?
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Loans Against Fixed Deposits (FDs)
Loans Against Fixed Deposits (FDs)
In times of financial emergencies or cash crunches, people often seek quick and reliable funding options. One such option is taking a loan against a fixed deposit (FD). Instead of prematurely breaking your FD, you can secure a loan using it as collateral. This is a time-efficient way to access short-term funds from financial institutions without disrupting your investment's growth.
What is a Loan Against Fixed Deposit (FD)?
A loan against FD is a type of secured loan where customers pledge their fixed deposit as security and receive a loan in return. The loan amount typically ranges from 90% to 95% of the FD's value. This type of loan is advantageous because it allows you to retain your investment in the FD while accessing the funds you need.
Who Can Apply for a Loan Against FD?
Individual FD Holders: Both individual and joint account holders can apply for this type of loan.
Minors: FDs held in the name of minors are not eligible for loans against FDs.
Tax-Saving FD Investors: Investors in 5-year tax-saving FDs cannot avail of loans against these deposits.
Benefits of a Loan Against FD
Lower Interest Rates: Loans against FDs typically have lower interest rates compared to personal loans, generally 0.5% to 2% above the FD interest rate.
No Need for Premature Withdrawal: By opting for a loan, you avoid breaking your FD prematurely and losing interest income.
No Processing Fees: Most banks do not charge processing fees for loans against FDs.
Flexibility: These loans can be availed against both domestic and NRI FDs.
Repayment Options: You can choose to repay the loan either as a lump sum or in installments, provided the repayment is completed before the FD matures.
How Does Collateral Work in Loans Against FD?
When you take a loan against your fixed deposit, the bank holds your FD as collateral. This secures the loan, allowing the bank to offer a lower interest rate. If you default on the loan repayment, the bank can recover the owed amount from your FD at maturity. This arrangement makes the loan relatively risk-free for the lender and provides you with a cost-effective borrowing option.
Credit Card Against FD: A Better Alternative?
Fixed deposits offer various benefits such as assured returns, flexible tenures, liquidity, and income tax savings. They also provide an opportunity to obtain a credit card against the FD. A credit card against a fixed deposit is a secured credit option with a credit limit typically ranging from 75% to 85% of the FD amount. Some banks offering such credit cards include SBI Unnati and Kotak Aqua Gold, which require a minimum FD of Rs. 25,000.
For those seeking a more affordable credit option, Paisabazaar, in partnership with SBM Bank (India) Ltd., offers the Step Up Credit Card. This card provides a credit limit of 90% of the FD amount and comes with the added benefit of being a lifetime free credit card.
Loan Limits in Major Banks
Different banks offer varying limits on loans against FDs. Here are some examples:
State Bank of India (SBI): Up to 90%
ICICI Bank: Up to 90%
Bank of Baroda: Up to 95%
Axis Bank: Up to 85%
HDFC Bank: Minimum Rs. 25,000
Citibank: Up to 90%
Kotak Mahindra Bank: Up to 85%
Yes Bank: Up to 90%
Punjab National Bank: Up to 90%
Canara Bank: Up to 90%
It's important to note that loans against FDs are not available for 5-year tax-saving FDs.
What is an Overdraft Facility?
Banks provide loans against FDs as an overdraft facility to customers. An overdraft limit backed by a fixed deposit is usually lower than the deposit amount, with the interest charged being slightly higher than the FD rate. The interest is charged only on the utilized overdraft amount, not the entire limit. For instance, if you have an FD of Rs. 1 lakh with an overdraft limit of 90%, and you take a loan of Rs. 50,000 (50% of the deposit amount), interest is charged only on the Rs. 50,000, not the full 90% limit.
Steps to Apply for a Loan Against FD
Check Eligibility: Ensure your FD is eligible for a loan. Minors and tax-saving FDs typically do not qualify.
Visit the Bank: Go to the bank where your FD is held and inquire about the loan process.
Submit Application: Fill out the loan application form and submit it along with necessary documents such as identity proof and FD receipts.
Approval and Disbursement: Once your application is approved, the loan amount is disbursed to your account. This process is usually quick and efficient.
Advantages of Using an FD for a Loan
No Need to Liquidate Savings: By taking a loan against your FD, you avoid breaking the deposit and losing out on potential interest income.
Cost-Effective: Loans against FDs come with lower interest rates compared to personal loans or credit card loans.
Flexibility in Repayment: You can choose a repayment schedule that suits your financial situation, making it easier to manage your finances.
Quick Access to Funds: The loan process is generally faster, providing quick access to funds during emergencies.
Disadvantages of Loans Against FDs
Limited to FD Amount: The loan amount is limited to a percentage of your FD, which might not be sufficient for larger financial needs.
Interest Accrual: Even though you are not breaking your FD, the loan amount accrues interest, adding to your financial obligations.
Risk of Losing FD: If you default on the loan, the bank can liquidate your FD to recover the owed amount.
Comparing Loans Against FDs with Other Loan Options
When deciding between a loan against an FD and other types of loans, consider the following:
Personal Loans: Personal loans do not require collateral but come with higher interest rates compared to loans against FDs.
Gold Loans: Gold loans also offer lower interest rates but require you to pledge physical gold as collateral.
Credit Card Loans: Credit card loans can be convenient but often have very high interest rates, making them less cost-effective.
Conclusion
Loans against fixed deposits provide a practical and cost-effective way to access funds during financial emergencies without liquidating your savings. With competitive interest rates, flexible repayment options, and quick processing, these loans are an excellent choice for those looking to maintain their investment while meeting urgent financial needs. Whether you need funds for medical emergencies, business needs, or personal expenses, a loan against your FD can be a reliable solution. Always consider the terms and conditions carefully and choose the option that best fits your financial situation.
In times of financial emergencies or cash crunches, people often seek quick and reliable funding options. One such option is taking a loan against a fixed deposit (FD). Instead of prematurely breaking your FD, you can secure a loan using it as collateral. This is a time-efficient way to access short-term funds from financial institutions without disrupting your investment's growth.
What is a Loan Against Fixed Deposit (FD)?
A loan against FD is a type of secured loan where customers pledge their fixed deposit as security and receive a loan in return. The loan amount typically ranges from 90% to 95% of the FD's value. This type of loan is advantageous because it allows you to retain your investment in the FD while accessing the funds you need.
Who Can Apply for a Loan Against FD?
Individual FD Holders: Both individual and joint account holders can apply for this type of loan.
Minors: FDs held in the name of minors are not eligible for loans against FDs.
Tax-Saving FD Investors: Investors in 5-year tax-saving FDs cannot avail of loans against these deposits.
Benefits of a Loan Against FD
Lower Interest Rates: Loans against FDs typically have lower interest rates compared to personal loans, generally 0.5% to 2% above the FD interest rate.
No Need for Premature Withdrawal: By opting for a loan, you avoid breaking your FD prematurely and losing interest income.
No Processing Fees: Most banks do not charge processing fees for loans against FDs.
Flexibility: These loans can be availed against both domestic and NRI FDs.
Repayment Options: You can choose to repay the loan either as a lump sum or in installments, provided the repayment is completed before the FD matures.
How Does Collateral Work in Loans Against FD?
When you take a loan against your fixed deposit, the bank holds your FD as collateral. This secures the loan, allowing the bank to offer a lower interest rate. If you default on the loan repayment, the bank can recover the owed amount from your FD at maturity. This arrangement makes the loan relatively risk-free for the lender and provides you with a cost-effective borrowing option.
Credit Card Against FD: A Better Alternative?
Fixed deposits offer various benefits such as assured returns, flexible tenures, liquidity, and income tax savings. They also provide an opportunity to obtain a credit card against the FD. A credit card against a fixed deposit is a secured credit option with a credit limit typically ranging from 75% to 85% of the FD amount. Some banks offering such credit cards include SBI Unnati and Kotak Aqua Gold, which require a minimum FD of Rs. 25,000.
For those seeking a more affordable credit option, Paisabazaar, in partnership with SBM Bank (India) Ltd., offers the Step Up Credit Card. This card provides a credit limit of 90% of the FD amount and comes with the added benefit of being a lifetime free credit card.
Loan Limits in Major Banks
Different banks offer varying limits on loans against FDs. Here are some examples:
State Bank of India (SBI): Up to 90%
ICICI Bank: Up to 90%
Bank of Baroda: Up to 95%
Axis Bank: Up to 85%
HDFC Bank: Minimum Rs. 25,000
Citibank: Up to 90%
Kotak Mahindra Bank: Up to 85%
Yes Bank: Up to 90%
Punjab National Bank: Up to 90%
Canara Bank: Up to 90%
It's important to note that loans against FDs are not available for 5-year tax-saving FDs.
What is an Overdraft Facility?
Banks provide loans against FDs as an overdraft facility to customers. An overdraft limit backed by a fixed deposit is usually lower than the deposit amount, with the interest charged being slightly higher than the FD rate. The interest is charged only on the utilized overdraft amount, not the entire limit. For instance, if you have an FD of Rs. 1 lakh with an overdraft limit of 90%, and you take a loan of Rs. 50,000 (50% of the deposit amount), interest is charged only on the Rs. 50,000, not the full 90% limit.
Steps to Apply for a Loan Against FD
Check Eligibility: Ensure your FD is eligible for a loan. Minors and tax-saving FDs typically do not qualify.
Visit the Bank: Go to the bank where your FD is held and inquire about the loan process.
Submit Application: Fill out the loan application form and submit it along with necessary documents such as identity proof and FD receipts.
Approval and Disbursement: Once your application is approved, the loan amount is disbursed to your account. This process is usually quick and efficient.
Advantages of Using an FD for a Loan
No Need to Liquidate Savings: By taking a loan against your FD, you avoid breaking the deposit and losing out on potential interest income.
Cost-Effective: Loans against FDs come with lower interest rates compared to personal loans or credit card loans.
Flexibility in Repayment: You can choose a repayment schedule that suits your financial situation, making it easier to manage your finances.
Quick Access to Funds: The loan process is generally faster, providing quick access to funds during emergencies.
Disadvantages of Loans Against FDs
Limited to FD Amount: The loan amount is limited to a percentage of your FD, which might not be sufficient for larger financial needs.
Interest Accrual: Even though you are not breaking your FD, the loan amount accrues interest, adding to your financial obligations.
Risk of Losing FD: If you default on the loan, the bank can liquidate your FD to recover the owed amount.
Comparing Loans Against FDs with Other Loan Options
When deciding between a loan against an FD and other types of loans, consider the following:
Personal Loans: Personal loans do not require collateral but come with higher interest rates compared to loans against FDs.
Gold Loans: Gold loans also offer lower interest rates but require you to pledge physical gold as collateral.
Credit Card Loans: Credit card loans can be convenient but often have very high interest rates, making them less cost-effective.
Conclusion
Loans against fixed deposits provide a practical and cost-effective way to access funds during financial emergencies without liquidating your savings. With competitive interest rates, flexible repayment options, and quick processing, these loans are an excellent choice for those looking to maintain their investment while meeting urgent financial needs. Whether you need funds for medical emergencies, business needs, or personal expenses, a loan against your FD can be a reliable solution. Always consider the terms and conditions carefully and choose the option that best fits your financial situation.
Author
Pluto Team
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