When you need quick and easy access to funds, it is helpful to have an option that does not negatively affect your investments. Some investors with fixed deposits (FD) may be tempted to prematurely break their fixed deposits to access their money. But this results in a loss on their FD returns. A better option that is available to investors with fixed deposits is taking out a loan against your fixed deposit. This allows you to borrow money from a bank or financial institution using your fixed deposit as collateral, without having to break the deposit prematurely.
If you already have a fixed deposit account with a bank or financial institution, then taking out a loan against your FD can be a convenient option for obtaining a short-term loan. However, it is important to carefully consider the terms and conditions of the loan and be aware of the risks involved, since you could lose your fixed deposit if you default on the loan repayments. Read more to explore how loans against fixed deposits work. Still haven’t started your fixed deposit investment? Begin your fixed deposit investment journey with Shriram Finance.
What is a Loan Against an FD?
A loan that is taken against a fixed depositis a secured loan that uses your fixed deposit as a form of collateral. In other words, you pledge your fixed deposit as security for the loan, and if you fail to make your loan repayments, the lender can seize your fixed deposit, according to the terms of the loan agreement.
To obtain a loan against fixed deposits, you need to have an existing fixed deposit account with a bank or financial institution. The lender will assess your creditworthiness and the value of your fixed deposit to determine the amount of money you are eligible to borrow. The loan amount will be a percentage of the value of your fixed deposit
Benefits of a Loan Against an FD
In addition to protecting your fixed deposit investments, there are many other benefits of taking a loan against a fixed deposit,including:
- Quick Access to Funds: A loan against a fixed deposit can provide you with fast and easy access to funds.
- Fixed Deposit Remains Intact: Taking out a loan against an FD allows you to borrow money without breaking your fixed deposit. This means you can continue to benefit from your fixed deposit investment while using it as collateral to secure a loan.
- Relatively Low-Interest Rates: Interest rates on loans against FDs are typically lower than those on unsecured loans since the fixed deposit serves as collateral for the loan.
- Flexible Repayment Terms: Lenders offer flexible repayment terms for loans against an FD, allowing you to choose a repayment schedule that works for you.
- Easy Application and Approval: The application and approval process for a loan against a fixed deposit is simple and hassle-free.
Who Can Apply for a Loan Against an FD?
One of the many benefits of investing in a fixed deposit is the ability of most FD investors to take a loan against their fixed deposit. The eligibility criteria for a loan against a Shriram Fixed Deposit is based on various factors including:
- Existing Fixed Deposit: To be eligible for a loan against an FD, you need to have a Shriram Fixed Deposit that is at least 3 months old.
- Not for Minors: A minor can open a Shriram Fixed Deposit with their natural or legal guardian as their representative. However, a loan cannot be taken against the fixed deposit of a minor. All other investors (individuals and companies) with a Shriram Fixed Deposit are eligible for a loan against their FD.
It is important to note that eligibility criteria are different according to the particular bank or financial institution. It is recommended to check with the lender to determine if you meet their requirements for a loan against an FD.
Interest Rate of Loans Against Fixed Deposits
The interest rate of loans against fixed deposits varies among financial institutions and depends on various factors, such as the amount of the loan, the tenure of the loan, and the creditworthiness of the borrower. However, in general, the interest rate of loans against fixed deposits is usually 1-2% higher than the interest rate earned on the fixed deposit.
For example, if the fixed deposit earns an interest rate of 7%, the interest rate of the loan against the fixed deposit may be around 8-9%. However, this may vary depending on the financial institution and other factors mentioned above. It's always a good idea to do a detailed research and compare the interest rates offered by different financial institutions before taking a loan against your fixed deposit.
Repayment of Loans Against Fixed Deposits
For loans taken against Shriram Fixed Deposits, repayments can be made at regular intervals, similar to other loan repayments. Or, the repayment can be made in one lump sum payment. With either option, the total repayment must be made before the maturity of the fixed deposit.
Using a fixed deposit as collateral means that you pledge the fixed deposit as security for a loan. If you default on the loan, the lender or creditor can seize the fixed deposit to recover the money owed. Using an FD as collateral can be a safe way to secure a loan when you do not have other assets to use as collateral or when you do not meet the credit score requirements for an unsecured loan. It can also allow you to secure your FD investment while getting access to the funds you need.
It should be kept in mind that using an FD as loan collateral has some risks. This includes losing the FD if you default on your loan repayments. Therefore, it is important to carefully consider the terms and conditions of the loan and to be aware of the risks involved before agreeing to use your fixed deposit as loan collateral.
Explore the option of investing in a Shriram Unnati Fixed Deposit, which is a safe investment method that allows you to invest your money with guaranteed returns and additional benefits such as taking a loan against your fixed deposit. Invest now!
FAQs
1. Does Shriram Fixed Deposit have attractive interest rates?
Shriram Fixed Deposits interest rates are as high as 9.40%* p.a. including additional interest rates of 0.50%* p.a. for senior citizens and 0.10%* p.a. for women. Moreover, there is an additional 0.25%* p.a. interest rate when the FD is renewed on maturity.
2. In addition to individuals, can companies with fixed deposits take out a loan against their FDs?
All companies, partnerships and societies with Shriram Fixed Deposits are eligible to take out a loan against their fixed deposit.
3. If I choose to make a lump sum payment to pay back the loan taken against my FD, will there be prepayment penalties?
While other types of loans (such as personal loans or business loans) have penalties for making repayments earlier than scheduled, loans taken against Shriram Fixed Deposits will not attract any prepayment penalties.
4. Are there additional charges or fees when taking a loan against an FD?
There are no processing fees or charges for loans taken against Shriram Fixed Deposits.
Key Takeaways
- Taking a loan against your fixed deposit allows you to borrow money using your fixed deposit as collateral, without having to break your FD prematurely.
- To obtain a loan against fixed deposits, you need to have an existing fixed deposit account with a bank or financial institution.
- For loans taken against Shriram Fixed Deposits, repayments can either be made at regular intervals or in one lump sum payment before the FD maturity date.
- Before taking out a loan against a fixed deposit, it is important to carefully consider the terms of the loan, compare it to other loan options and weigh the potential risks and benefits.
