Fixed deposits (FDs) serve as a valuable investment vehicle, offering predictable returns for a defined tenure. One of the advantages of FDs is the possibility of getting a loan against them. This loan facility, often referred to as an overdraft, provides a convenient and accessible source of funds in times of need.
Unlike traditional loans, obtaining a loan against an FD typically involves a streamlined process with minimal documentation. This is because the FD itself acts as collateral, reducing the risk. Interest rates on such loans may differ from other loan products, depending on the institution’s policies and prevailing rate structure.
Let’s take a look at everything you need to know to take a loan against a fixed deposit.
What is a Fixed Deposit?
A fixed deposit is an investment option offered by NBFCs. It can help you grow your money over a period and give you consistent returns. To start an FD, you must first invest a lump sum of money, select a tenure for this deposit, and upon maturity, you will get both the principal amount and the interest in your registered bank account. Depending on your financial requirements, you can decide if you want the interest paid at your chosen payout frequency or upon the FD’s maturity.
You can open Shriram Fixed Deposit with an amount starting from ₹5,000, subject to applicable terms. You will be paid the entire principal amount you invested plus the interest amount upon maturity of your deposit. The revised rates will only be applicable if you are starting a new deposit.
What is the Eligibility for getting a Loan against an FD?
While getting a loan against an FD seems easy, you must remember that there are specific criteria you need to meet to get a loan against an FD. Listed below are the conditions you need to fulfil to be eligible for such a loan:
- You need to have a fixed deposit account to be eligible for a loan against FD.
- The sanctioned loan amount is generally linked to a percentage of the FD value, as per institutional policy.
- A fixed deposit in the name of a minor usually does not qualify for this scheme.
- The loan’s payback term cannot be greater than the tenure of the fixed deposit.
Eligibility criteria may vary depending on the financial institution’s policies.
Procedure to get a Loan against FD
There is no need to prematurely break FDs as you can always use them to get loans. You can obtain a loan against an FD online or offline. To initiate the process, you must submit an application form, the required documents, and the FD receipt.
Features and Benefits of a Loan against FD
- Credit score Consideration: For loans against FDs, eligibility is primarily linked to the deposit held as collateral. Credit score assessment policies may vary by institution.
- Lower interest rates: Since the FD serves as collateral, the interest rate applicable to such loans may differ from unsecured loan products. The exact rate depends on institutional policy and prevailing terms.
- Minimal documentation: If you have an existing relationship with the financial institution, documentation requirement may be limited.
- Prepayment: Prepayment terms are defined by the institution’s loan agreement. Certain institutions may permit prepayment without additional charges, subject to applicable terms and conditions.
How Does the Loan Against FD Work?
- Loan Amount: The loan amount is typically a percentage of the FD value, as defined by the institution’s terms and conditions.
- Interest Rate: Interest rates applicable to loans against FDs vary by institution and are determined as per prevailing policies.
- Collateral: Your fixed deposit acts as collateral.
- Repayment: The principal amount may be repaid at the end of the loan tenure loan or through EMIs.
Example:
Let’s say you have a fixed deposit of ₹5 lakhs. And you take a loan of ₹3 lakhs. Instead of paying interest on the entire ₹5 lakhs, you'll only pay interest on the borrowed amount of ₹3 lakhs.
Advantages of a Loan Against FD
- Lower Interest Rates: Enjoy more affordable borrowing costs to meet emergencies.
- Quick Approval: The process is often faster due to the collateral of your FD.
- Convenient Access: Borrow money without liquidating your investment.
Note: While a loan against FD can be a convenient option, it's essential to consider factors like interest rates, repayment terms, and any associated charges before making a decision.
Steps to Open an FD
Here are the steps to quickly start a new fixed deposit:
- Step 1: Visit the bank branch or NBFC and ask for the FD opening form.
- Step 2: Fill in all the details and submit documents like identity proof, address proof and bank account details.
- Step 3: After verifying the information in your documents, the bank/NBFC will open your new FD account.
- Step 4: Your account will be started, and you can now earn interest and use it for additional benefits like taking a loan against FD.
Conclusion
A loan against a fixed deposit may be considered by individuals who already hold an active FD, subject to eligibility criteria and institutional policies.
Start Shriram Fixed Deposit to get attractive interest rates available. You can use the FD calculator to check the amount of interest you can avail of upon the maturity of your deposit. Senior citizens can also benefit from an additional 0.50%* p.a. and 0.05%* p.a. for women depositors. You can easily use the FD to help with whatever financial need pops up in your life.
Key Highlights:
- A loan against FD can be taken by anyone who already has a fixed deposit.
- You do not usually need other additional documents to take out a loan against an FD.
- Interest rates and repayment terms vary as per the loan agreement.
- Prepayment terms are governed by the applicable loan conditions.
FAQs
What is the tenure within which the loan taken against FD should be repaid?
A loan against an FD must be repaid before the fixed deposit maturity.
In which type of deposit loan against FD is not allowed?
Loan eligibility may vary depending on the institution. Certain deposit categories, including minor-held deposits, may have restrictions, subject to product terms and regulatory guidelines.