What is a Loan Against FD? Know Interest Rate, Features, Eligibility and How to Apply

Many people break their FD accounts for immediate cash flow during unfortunate events and sudden developments. In such cases, you can avail of a loan against FD rather than liquidating your investments. Different loan options are available in the market, catering to various needs, such as home, car, and personal loans.

However, sometimes availing of a loan can get tricky due to multiple reasons like delay in process, documentation, low credit score, etc. In such a scenario, you can also get a loan against FD. This loan can give you funds against your existing deposits so that you can easily meet your financial needs.

Let’s understand what a loan against FD means and its different aspects.

What is a Loan against FD?

A loan against FD is a credit facility banks offer as a loan against your existing fixed deposit account. Rather than withdrawing your fixed deposit prematurely and paying penalty fees, you can avail of this secured loan at an affordable interest rate. While some banks offer upto 90% of the FD amount as a loan, the amount is not fixed and varies from bank to bank.

Features of Loan Against FD

• The loan is offered on the amount deposited and not on the amount you will receive on maturity.
• The loan against FD interest rate is usually 1% or 2% above the fixed deposit interest rate. For instance, if your fixed deposit offers an interest rate of 6%, the loan interest rate would be 7% or 8%, as determined by the bank. However, this rate is still typically lower than personal loan interest rates. 
• The tenure of a loan against fixed deposit is either the same or less than that of the fixed deposit itself. For example, if the tenure of your Fixed Deposit is 6 years, the loan can be either less than or equal to 6 years but cannot exceed that.
• Since the loan is offered against an existing deposit, your credit score is not given too much importance. So even if you have a low or no credit score, you can get this loan.
• Prepayment is also allowed, wherein you can pay off a loan early to reduce the interest burden.Further, many banks do not charge any fees on foreclosure of the loan.
• Maximum amount for a personal loan is determined by a variety of factors such as credit score, income, repayment schedule and so on. But when you avail a loan against an FD, the maximum loan amount is determined by the amount of money in your FD account. This means if you have a higher FD amount, you will be eligible for a larger loan.

Also Read: Experience financial growth with unmatched Bajaj Finance FD Rates

Advantages of Loan Against Fixed deposit.

Unlike other loan types, such as personal loans, loans against FD offer several benefits. A few of them are listed below:

• They come with lower interest rates, typically ranging from 0.5% to 2% above the prevailing Fixed Deposit (FD) rate.
• There is no requirement to prematurely withdraw your FD, avoiding any loss of interest on your FD investment.
• These loans do not impose any processing fees.
• They can be obtained using both domestic and NRI FDs as collateral.
• Repayment options are flexible, allowing for lump-sum payments or instalment payments within the FD tenure.

How to Obtain a Loan Against FD?

You can avail of a loan against FD in the following ways:

Offline Channel

You can visit the nearest branch of your bank, where you maintain a fixed deposit account. You can fill up a loan application form and submit it with your Fixed Deposit Receipt. As the bank already has your KYC formalities updated from when you opened your FD, the documentation required for a loan against your FD will be minimal. 

Once the branch will verify your application and documents, they will sanction the loan.

Online Channel

An online channel is also available, wherein you can get the loan through the bank’s website. Just log into your net banking account, choose the deposit scheme against which you want the loan and apply. Fill out an online application form and submit your documents. The bank will issue the loan once your application and documents are verified.

Mobile App Channel

Many banks have launched mobile applications that help you track your accounts and investments. You can download your bank’s mobile app and apply for a loan from the app itself. Just fill out a simple application form and upload your documents. The bank would verify your details and sanction the loan on a fixed deposit.

Eligibility Criteria for Availing Loan Against FD

Usually, the eligibility parameters depend on the bank with which you apply for the loan. However, some of the common eligibility parameters are as follows:

Documents Required to Apply for a Loan Against a Fixed Deposit

To apply for this loan facility, you will typically need to provide the following essential documents:

• A completed and signed application for a loan against your fixed deposit.
• Your Fixed Deposit receipt, endorsed in favor of the lender.
• Any standing instructions given to your bank, if applicable.

Repayment of Loan Against Fixed Deposit

You can repay the loan amount through equated monthly instalments (EMIs). Depending on the lender, you can receive a loan of up to 90% of your fixed deposit amount.

The specific terms and conditions, including the interest rate and repayment duration, can differ from one lender to another. In cases where banks offer loans against fixed deposits, they typically apply interest rates up to 3% higher than the prevailing FD interest rate.

Banks Offering Loan Against Fixed Deposits

Here’s a look at some of the banks that offer the loan, their interest rates and loan quantum:

Credit Card Against Fixed Deposit

Generally, banks offer credit cards based on the applicant’s credit score and gross income. These credit cards are also called unsecured credit cards since there is no collateral on them. FD credit cards are ideal for those with no credit history or low credit scores looking to improve their credit profile.

Depending on the bank, you can avail of a credit card on a minimum fixed deposit of ₹10,000. Credit limits typically range from 75% to 85% of the FD value. Therefore, investing more in a fixed deposit will give you a higher credit card limit. Almost all prominent banks in India offer credit cards against fixed deposits.

Final Thoughts

If you face an emergency, like a medical crisis or a loss of job, or if you have any other financial obligation, you can avail of a loan against FD and get the funds you need. The loan has affordable interest rates and allows the overdraft facility wherein you pay interest only on the borrowed amount.

However, one of the disadvantages of the loan against fixed deposit is that the loan amount depends on your fixed deposit. If your deposit is low, you might not get funds as per your need. Other than this, the loan offers easy financing for your needs.

FAQs about Loan Against FD