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Major things to consider when availing of a loan against FD

Loan against FD, Loan on Credit Card

Can you make money work for yourself? On paper, it may sound like a dream that is too excellent to be true. However, you can put your idle surplus funds to good use. When stuck in any sudden financial situation, many of you end up redeeming your assets like the fixed deposit.

While this step may simply assist you to overcome the rainy days, it also trumps the investment purpose. Thus, what is a better alternative for redeeming your fixed deposit? Pledging it as security and availing an instant loan. This is known as a loan against FD.

Loan against FD does not have any processing fees and permits convenient repayments either in a lump sum or monthly instalment form. Interest charged on these loans is extremely competitive and higher as compared to the fixed deposit rates. With investment intact, you also can continue to avail consistent returns on deposits towards it.

Note that there are basically 2 ways you can avail loan against FD:

∙       Opt for the overdraft facility

∙       Take the regular loan

However, before going ahead, ensure to take note of the points listed below:

Loan eligibility

This is one of the initial things to factor in case you are eligible for a financial product. This credit option is accessible to anyone that holds a fixed deposit, whether jointly or alone. Your monthly salary, profession and credit profile are the secondary criteria here and just considered if you apply for an overdraft option. However, in case the deposit is in the name of the minor or was formed for tax saving reasons, it does not qualify for availing of this loan facility.

Borrowing limits

A loan against FD has a defined credit limit. The loan amount that you borrow basically is dependent upon the deposited sum in your account. Usually, banks sanction 90 to 95 percent of the fixed deposit amount in the form of a loan. The cap on the loan amount is generally set at 90 percent for this overdraft loan facility. How does it exactly work? Well, assume you have Rs 5 lakh in your fixed deposit account. In this case, your bank can provide you with a maximum overdraft limit of around Rs 45,000. Remember, you cannot withdraw above this limit. Apart from this, you will just be charged the interest on the amount that you withdraw from the FD account.

Fixed deposit lien

Like other credit facilities, the loans taken against the fixed deposit too are associated with a cost. When you utilize the deposit for backing the loan, your bank generates a lien on the same. Next, your bank will get an automatic claim on the amount deposited until the repayment tenure is over. A loan is even secured and comes at a lower FD rate because of the lien. Thus, on defaulting on the payments, the bank will utilize the fixed deposit to claim borrowed funds. However, once you have repaid the debt in totality, the lien will automatically be removed.

Repayment tenure

Lastly, you must pay good attention to the repayment tenure. It is because a loan against FD does not come with separate repayment tenure.

In the end, you should give extra special attention to the loan tenure. This is only because of a loan against FD as it doesn’t come along with a distinct loan tenure. The maximum loan tenure you can get on a loan is the same as the tenure of your FD.

FD is one of the most convenient routes to raise funds at a lower cost. You can borrow against a fixed deposit in 2 ways – take a loan or ask the financial institution to issue the OD (overdraft). In overdraft, banks sanction a limit based on the fixed deposit value. If the borrower has an FD of Rs 10 lakh, a bank can approve an overdraft of up to Rs 9 lakh. Borrowers can withdraw an amount of up to Rs 9 lakh. There is zero fixed duration for the repayment of OD. The borrower requires to pay the interest for it until he/she holds the amount. A loan against FD is like other loans. The borrower gets the money just in one shot, which he can repay in EMI (Equated Monthly Installment).

Usually, banks charge nearly 2 % points higher as compared to the fixed deposit rate when they approve the loan. If the depositor booked an FD at 7 percent, then the interest rate on loan against FD will be 9 percent. However, a few of the banks like PNB (Punjab National Bank) and SBI (State Bank of India) charge 1 % and 0.75 % points higher than the fixed deposit rate.

LOAN AGAINST FIXED DEPOSIT
Name of Bank FD Interest Rate Range (%) Interest Rate (%) Minimum Loan Amount Maximum Loan Amount
Lowest Rate Highest Rated      
Axis Bank 2.50 5.75 FD Rate + 2 Rs 25,000 Upto 85% of FD Amount
HDFC Bank 2.50 5.50 FD Rate + 2 Rs 25,000 Up to 90% of FD Amount
State Bank of India 2.90 5.40 FD Rate + 1 Online (overdraft) -Rs 25,000

In Branch- No Limit

Up to 90% of FD Amount (Maximum Rs 5 crore for an online overdraft)
Federal Bank 2.50 5.60 FD Rate + 2 No Limit Up to 90% of FD Amount
Bandhan Bank 3.00 5.50 FD Rate + 1.50 – 2.00 No Limit Up to 90% of FD Amount
Deutsche Bank 1.80 6.25 FD Rate + 2 Rs 25,000 Up to 95% of FD Amount
Punjab National Bank 2.90 5.25 FD Rate + 0.75 Online-Rs 25,000 Upto 95% of FD Amount
Indian Bank 2.80 5.25 FD Rate + 2 No Limit 90% of Accrued Value of Deposit

 

Some of the crucial features of a loan against FD

∙       All the customers’ single and joint account holders can avail of a loan against fixed deposit.

∙       You can take up a loan of up to 90-95% of the deposit amount

∙       Existing fixed deposit amount serves as security or collateral.

∙       Repayment period must not surpass the repayment tenure of FD

∙       Loan is treated as overdraft or demand

∙       You can apply for internet banking or visit your nearing financial institution branch

∙       There are zero processing charges needed for the loan

∙       Interest rate is usually up to 2% higher than the FD rate

How can you apply for the loan against FD online?

∙       Log in to your internet banking account with your password and user ID

∙       Go to the FD section and choose the overdraft option against FD.

∙       Place in relevant details like loan required amount, repayment tenure etc.

∙       Approval process of the loan is online. Once approved, you can get the notification through SMS and email.

Conclusion

The above-listed pointers are to help you simply apply for a loan against FD and get instant finance to fund your personal requirement. Alternatively, you can also consider opting for a loan against credit card option if you hold a credit card. A loan against credit card is a preapproved loan, which can be availed immediately on the same day of a loan application. This feature helps you in times of urgent financial emergencies.

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