How to Take a Loan Against NSC?

The National Savings Certificate is a government-backed, fixed-income investment scheme. It has a maturity period of 5 years that yields an interest of 6.8% p.a. The Finance Ministry revises the interest rate every quarter. You can also avail of tax benefits under section 80C on the NSC maturity amount and interest. Moreover, you can even get a loan against NSC, using it as collateral. 

In addition, the interest charged on loans against NSC is usually lower than on personal loans. But the question that arises is how to take a loan against NSC. Read this article to understand the process of drawing a loan against NSC.

How to use NSC as security for loans?

If you are a holder of a National Savings Certificate, then you can get a loan against an NSC certificate in the following two ways:

• You can get a flat loan against an NSC certificate. A flat loan is a type of loan in which the total interest that the borrower pays is decided at the very beginning based on the total principal amount. You can repay this loan on NSC in the form of monthly EMIs. 
• You can obtain an overdraft loan against the National Savings Certificate. The overdraft facility allows you to borrow money even when your account has insufficient funds to cover the withdrawal amount. You can repay it within a fixed time period decided by your concerned bank. 

Understanding loan against NSC interest rate                                                                                                                               

Now, let us talk about the interest rates of the two types of loans that can be drawn against NSC:

• The interest levied on a flat loan or an overdraft is usually less than the interest levied on personal loans. Since the interest rate is subject to the terms and conditions of individual banks, it might vary from bank to bank.
• The interest rate on a flat loan is comparatively lower than that on an overdraft. Besides the interest charged on the loan, you will also have to bear a processing charge of up to 1% of the loan. This is, however, a one-time charge. Usually, no payment charges are levied on loans taken against an NSC. 

The amount of loan you can receive against an NSC varies according to the policies of individual banks. However, a bank can offer up to 70-90% of the NSC value as a loan. The NSC, which has been held for three years, will get you the maximum loan amount, while an NSC held for less than a year is likely to yield the least.

Process for taking a loan against NSC

Once you get hold of your National Savings Certificate from the post office, you become eligible to draw a loan against the NSC certificate. You must visit the bank from which you wish to avail the loan  to apply for a loan against NSC. It would be best to approach your existing banking service provider where you are a regular customer. 

Here is a step-by-step process of taking a loan against the National Savings Certificate:

• You need to collect the NC 41 Form from the post office, fill it up and then submit it to the post office from where you collected it. You can collect the form either from the post office or download it online. The NC 41 form must be signed by both the pledgee and the pledger and submitted along with your original National Savings Certificates and other documents.
  
• Once you have submitted your application, the post office will mark the pledge on the NSC as per its rules. The post office can pledge the loan against the NSC in favour of:
  

1. RBI
2. Public and private corporations 
3.  A Government company
4. A cooperative bank or society
5. Scheduled banks
6. State Governor or the President of India

• Now, the post office will thoroughly check the NC – 41 Form. If everything is in order, the concerned officer will write “Transferred security to…”  on your NSC in red ink below the postmaster’s dated signature.
  
• You need to pay the stipulated fees to the post office for the entire process of verifying and releasing the pledge.
  
• Until the post office releases the pledge, the pledgee owns the NSC. Once the post office receives an order of release from the authorised person representing the pledge, the certificates are transferred to the bank.
  
• Once the bank receives the certificates duly marked as pledged by the post office, it will release the loan to you. You can either get a flat loan or an overdraft facility against the National Savings certificate, depending on your financial stability,

Documents required for taking a loan

Listed below are the documents required to draw a loan against NSC certificate –

• ID proof: You need valid identity proof issued by the Government of India. Some valid ID proofs are Aadhaar card, voter ID, PAN card etc.
  
• Income Proof: Before giving you a loan against your NSC, the bank usually asks for valid income proof to understand your loan repayment capability.
  
• Photographs: You might be asked to submit passport-sized photographs.
  
• Original NCS: You must have a copy of your original National Savings Certificate as you must submit it to the bank, as they will not accept the duplicate or photocopies of the NSC.

Eligibility for taking a loan

The following are the eligibility criteria for getting a loan against NSC:

• You should be an Indian citizen.
  
• You have to be at least 18 years old. Since a National Savings Certificate can be bought by the legal/natural guardian of a minor, most banks have mandated that any individual seeking to draw a loan against an NSC must be 18 years of age or above.
  
• The maximum age limit up to which a loan can be drawn against an NSC is 75 years.
  
• You need to prove that you are the holder of the NSC against which you want to get a loan. The certificate should have your name on it. You cannot use a National Savings Certificate bearing another person’s name as collateral to draw a loan.
  
• Non-Resident Indians (NRIs) cannot purchase a National Savings Certificate. Hence, they are not eligible for a loan.

Final Thoughts

Financial emergencies can arise without warning. Therefore, saving is essential. Investing in NSC is a good option as you can even get a loan against it quickly. You can easily take a flat loan or overdraft against your NSC from any authorised bank by following the steps mentioned above. Moreover, you can draw up to % of the face value of your NSC, which can be a substantial amount. 

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