Life is not a smooth ride, it is a journey on bumpy roads, and there are always some ups and lows. During ups, life is still a merry go round, but it is our attitude downs which determine the trajectory of our life. This same case is almost pervasive with everything, including finance too. One may come across an unpredictable situation and face a financial crunch at some moment in his life. Most often, people take the help of loans to bail them out from financial instability, and one such loan is a loan against fixed deposit.
Fixed deposits are the term deposits where an individual deposits a certain lump sum amount and earns a reasonable amount of interest on that lump sum amount for a specific period. They are one of the most popular financial instrument, and their safety adds to the attractiveness of the instrument. The fixed deposit also allows an individual to take a loan against them and these loans are referred to as loans against FD.
Loans against FD
Loans which are taken against the fixed deposits are known as loans against FD. Loans against fixed deposits are secured loans and allow an individual to take a loan rather than closing the FD prematurely. A borrower can get a loan of around 80%-90% of fixed deposits value.
Eligibility of Loan against Fixed deposits
- All the fixed deposit holders can avail loan against FD, be it individual holder or those with joint accounts.
- FD in the name of a person below 18 years is not eligible for this facility.
- Investors of 5-year tax-saving fixed deposits are not eligible for a loan against FD.
How does loans against FD works
Amount of loan – The amount of credit provided against fixed deposit by banks is a percentage of the FD amount. It ranges between 80 per cent to 90 per cent of the total fixed deposit value.
Interest rate – The interest rate charged on a loan of FD usually hovers in the range of 2 %and 2.5%
Processing fees – Banks typically do not charge any kind of processing fees on loan against FD, unlike home and personal loans. However, this varies from bank to bank.
Repayment of the loan –Repayment of the loans can be either lump sum or in instalments. However, the loan tenure should not exceed the duration of the Fixed Deposit held with the bank.
Foreclosure Charges – Banks do not generally charge any penalty or additional charges in case of foreclosure of the loan against FD
Benefits of loan against FD
- It helps one to get the required funds and deters one from closing the FD prematurely
- Generally, the interest rates on loan against FD are lower than the personal loans. Thus, it helps one to save some funds.
- Loans against FD can be availed against most FD.
- The loan approval process of the loan against property is quick and involves fewer documents
- There is no processing cost involved.