Getting a Loan Against Fixed Deposit is much easier than conceptualized. For all your cash requirements, you can easily avoid dissolving your long-kept fixed deposits. Now, it’s possible to avail up to 85% of the value of the fixed deposit without losing out on the interest component. This may or may not be paired with a penalty on the fixed deposit. So as they say know them well before you apply for a Loan Against Fixed Deposit. Let’s take a quick glance at the main features and then make a well-informed decision.
As we often hear, a cash emergency can be dealt with borrowings from different sources. One of the best sources can be having loans against fixed deposits from Banks or other financial institutions. This is populated as one of the most time effective forms of borrowings, though in the short term only. Of course, this is an admissible way of funding your commitments instead of touching upon your FDs and breaking the FD prematurely. This way a personal loan can be really helpful.
Fixed Deposit as Collateral Security
When you opt for a loan against FD, your Fixed Deposit is used as the collateral security. This form of credit is actually suitable for individuals with a bad credit score or the ones who do not match the eligibility criteria. This makes it difficult to have an easy personal loan from the bank.
Read More: Top 5 Company Fixed Deposits Plans
Offers Overdraft Facility
The loan is provided as an overdraft on the Fixed Deposit.
Let’s better understand an overdraft first:
An overdraft is a total concept from demand loans. This is a privileged facility provided by your bank where the customer is allowed to extract a certain amount from the designated account. The amount which can be used is based on several factors like income, credit history, eligibility, risk quotient, etc. as decided upon by the financial institution, purely dependent on the payment history. The overdraft credit limit is subject to frequent changes in the borrower credit score, out of all other things. This is a huge advantage to the businesses and individuals against their age-old FDs and securities.
The best thing about an overdraft is that interest is charged on the utilized portion only, unlike a loan which is on the entire sum.
Amount of loan granted against Fixed Deposit
Financial institutions lend a fixed amount as a loan based on the FD value. This can easily be within the range of 70-95% of the total FD value. On an FD of 100 lakhs, 90 lakhs will be possibly be given out as an overdraft.
Low-Interest Rates on loan against fixed deposit
Rates of interest on a loan against fixed deposit is better compared to conventional loans which are unsecured and charge more. This interest rate is typically higher than the internet earned on a Fixed Deposit. Undeniably, this is total upto the bank you’ve approached. It is good to note that the tenure of a loan against FD cannot be longer than the original Bank FD.
Repayment mechanism of loan against Fixed deposit
Banks & financial institutions offer flexible repayment schemes with a specific condition of the loan tenure not exceeding the duration of the FD. Thereby, making possible repayments in lump sum or installments.