• Investment
  • Car
  • Bike
  • Taxi
  • Term Life
  • Health
  • Travel

Loan Against Fixed Deposit

In current times, banks are coming up with various schemes, different products such as gold coins, insurance policies, low risk and moderate returns investment schemes, along with easy procedures to take loans and good repayment schedules to attract customers. Customers these days tend to approach banks during cash- requirement emergencies rather than raising loans through informal channels. This is because loans raised through banking channel provide better benefits.

A loan can be raised by a person for various reasons. Depending upon the reason for which such loan is to be provided, banks offer various types of loans. Where money is required for business purposes, bank overdraft or credit facilities are availed by customers. On the other hand, where the borrower is already a customer of the bank holding fixed deposits and is in urgent need of funds, he/she can avail loan against such fixed deposits. Banks also provide housing loans or loans against property.

To manage the liquidity of funds is one of the important aspects of financial planning. Sometimes, individuals tend to use the traditional banking source of loan against fixed deposits to ensure liquidity. It not only provides short term money without liquidating the investment portfolio, but also provides the option of borrowing at lower interest rates as compared to other personal loans. Also, the procedural and compliance part of raising a loan against fixed deposits is much easier than other loan options.

Benefits of Availing Loan Against FD

  • One of the major advantages of borrowing loans against fixed deposit is that one doesn’t require a good credit score to borrow a loan or where a loan has been rejected by a bank due to eligibility criteria, loans against deposits can be easily made available.
  • The cost of availing a loan against fixed deposit is much lower than the cost of a regular loan. In other words, interest rates on loan against fixed deposit are lower than regular interest rate loans.
  • In most of the cases under this type of loan, no processing fee is charged. It reduces the cost of loan borrowed.
  • The loan is borrowed against fixed deposit held by the investor and there is no need to break such fixed deposits. So, the loan amount can be raised by keeping the fixed deposit intact.
  • It’s very easy to apply for such loans. One does not need much documentation and does not require any certifications from professionals. The procedural part is easy to comply with.
  • Another advantage is that the loan can be availed against domestic as well as NRI fixed deposits.

How to Apply for a Loan Online Against Your FD?

  • Step 1: Log on to your bank portal, then login to internet banking by typing in your username and password
  • Step 2: Then go to the tab which says ‘fixed deposit’.
  • Step 3: Click on ‘Overdraft against FD’ option
  • Step 4: Fill in relevant details like how much loan to avail, the tenure of loan and such other details as required and submit the application.
  • Step 5: The loan will be approved online and post approval, you will get a notification in this regard through registered E-mail and SMS.

Documents Required for Applying for a Loan Against FD

One does not require a large no. of documents to be submitted to the bank to avail such a loan as documents were already submitted by the customer to the bank while opening a fixed deposit with the bank. Only two documents are required to be submitted. The documents are:

  1. Fixed Deposit receipt
  2. Loan application form.

Procedural Compliance

While availing loan against fixed deposit, things which are to be taken care of are:

  1. Fixed deposit against which loan is to be taken shall be free of any previous lien or encumbrance
  2. Deposit shall not be in the name of minor.
  3. If deposit is in joint name, then all holders of the deposit have to execute the loan documents.
  4. Investor should have a deposit with the bank from which he is availing the loan.

FAQs on Loan against Fixed Deposit

Can I get a loan against FD?

Yes, a customer excluding minor can get a loan against FD. However, the loan amount cannot exceed Rs. 5 crores.

What is a loan against fixed deposit?

To manage the liquidity crisis, banks offer loan against fixed deposits to the customers at lower interest rates than other loans with minimum documentation and hassle-free process.

How much loan can I get against my FD?

Various banks provide loans which range from 70% to 90% of the fixed deposit amount.

What is fixed deposit overdraft?

Loans against fixed deposit are generally provided in the form of overdraft facility. Overdraft facility is given by bank wherein the customer can withdraw a certain amount of money from their FD account.

Is it good to take a loan on FD?

Yes, in order to arrange short term funds, it is good to take loans on FD. However, care must be taken as non- repayment of the loan could lead to foreclosure of fixed deposits.

How can I take a loan from LIC policy?

Insurance companies provide policy loans. It uses the surrender value of a person’s life insurance policy as collateral. Sometimes, it is referred to as a life insurance loan. One must ensure whether their insurance plan has a loan feature in it before proceeding.

How does overdraft work on FD?

Interest is charged only on the amount withdrawn and not on the entire amount borrowed.

How do I repay my overdraft?

Banks offer flexible repayment schedules for repayment of loan against fixed deposit taken as an overdraft facility. The loan can be repaid in installments or as a lump sum amount.

How is Over Draft interest calculated?

Let’s consider the following example for understanding the same:

The interest rate for loan against Fixed Deposits as provided by the State Bank of India is 1 percent above its Fixed Deposits interest rate. This means that if the interest rate of a Fixed Deposits is 6.80 percent (tenure – 1 year to 2 years), then the interest rate on a loan given against this Fixed Deposits would be 7.80 percent. This is much lower compared with SBI’s personal loan interest rates which start from 12.50 percent.