How Loan Against FD Works?

July 29, 2024 by Purvika Parmar

Table of Contents

How Loan Against FD Works: A loan against your Fixed Deposit (FD) is a great way to get some extra cash. You can get this loan quickly without having to take your money out early. This means your FD keeps earning interest. You can usually borrow up to 75% of a cumulative FD’s value or 60% for non-cumulative ones.

The interest rate is about 2% more than what your FD makes. Still, it’s cheaper than other loans not backed by a deposit. You can pay the loan back at your own pace, without set monthly amounts. And, when your FD matures, any remaining loan balance comes from that.

Key Takeaways

Loan against FD allows you to borrow money using your FD as collateral
Loan amount is typically up to 75% of the FD value for cumulative deposits and 60% for non-cumulative deposits
Interest rate is usually 2% above the FD rate, making it a cost-effective option
Repayment is flexible, with no fixed EMIs
Outstanding loan is adjusted from the FD proceeds upon maturity

What is a Loan Against FD?

A loan against a fixed deposit (FD) lets you borrow money by using your FD as security. This way, you don’t have to break the FD early and pay fines. Loan against fixed deposit lets you keep earning interest on your FD till it matures.

Definition and Overview of a Loan Against FD

A loan against FD uses your fixed deposit as a guarantee for a loan. It’s good when you need cash but don’t want to lose out on interest by breaking your FD early. You get money from the bank using your FD as a promise, and you still get interest on the rest of the FD’s value.

The bank or lender puts a lien on your FD. This means they secure a claim on your FD until you repay the loan. The process makes sure the lender is safe to give you the money. And you can get that money without losing from your long-term savings plan.

Key Features of a Loan Against FD	Description
Collateral	Your existing fixed deposit is used as collateral for the loan.
Interest Earning	Your FD continues to earn interest during the loan period.
Loan Amount	Typically, you can borrow up to 90% of the FD’s value.
Interest Rates	Interest rates are generally lower than unsecured loans.
Repayment	Flexible repayment options, often aligned with the FD maturity.

A loan against fixed deposit is a good way to borrow money without affecting your savings much. Because you pledge your FD, the interest rates are usually low. Plus, you avoid penalties from breaking your FD early.

Benefits of a Loan Against FD

Getting a loan against your fixed deposit (FD) can be a smart move. It lets you keep your FD safe, avoid paying withdrawal penalties, and enjoy low-interest rates. This way, you get the money you need without losing out on potential earnings from your FD.

Avoid FD Penalties

One of the main perks of a loan against FD is skipping the fees for early withdrawal. Instead of taking money out and paying up, you can get a loan. This keeps your FD earning interest while you use the loan.

Lower Interest Rates

Loans from your FD usually have interest rates 2% above what your FD earns. This is lower than unsecured loans. So, you save more money over time, making it a cheaper loan option.

Flexible Repayment

When you get a loan against your FD, the repayment fits with when your FD matures. You can pay it all at once or flexibly without any extra fees. This is handy if your finances change while you’re still paying off the loan.

Continued FD Earnings

Even when you have a loan against your FD, it keeps earning interest. You still get to use the money from your FD. But, it also keeps growing, which is a win-win for you.

“Securing a loan against your fixed deposit can provide a convenient and cost-effective financing solution, with the added advantage of preserving your investment’s growth potential.”

In short, a loan against FD is a great choice for flexible and affordable financing. It helps you meet your financial needs without hurting your long-term savings. The benefits include keeping your FD safe and continuing to make money off it.

Eligibility Criteria for a Loan Against FD

If you want a loan against your fixed deposit (FD), you have to meet specific criteria. It doesn’t matter if you’re a person, part of a Hindu Undivided Family (HUF), or a business. Knowing these rules is key for a smooth application process.

For a loan against an FD, the applicant must be from India. This means foreign citizens, Persons of Indian Origin (PIOs), and Non-Resident Indians (NRIs) usually can’t get this loan. The applicant also needs to be 18 years old or more.

Resident individuals: Indian residents can apply for a loan against their FD.
Hindu Undivided Family (HUF): A legally recognized HUF entity can also avail a loan against their FD.
Sole proprietorship: Sole proprietorships are eligible to apply for a loan against their FD.
Partnership firms: Partnership businesses can access a loan against their firm’s FD.

The main thing you need for this loan is the FD itself. Since the FD secures the loan, there’s no need for other proof of income or high credit scores. This makes the eligibility criteria for loan against fd and who can avail loan against fixed deposit straightforward. Many people and entities can make use of this loan option.

“A loan against FD is a smart way to get funds without affecting your savings.”

Knowing the rules can help you decide if an FD loan is right for you. This goes for individuals, family businesses, and partnership firms. This loan gives flexibility and keeps your FD investments safe.

How Loan Against FD Works

Getting a loan using your fixed deposit (FD) is simple. Knowing the steps helps you use your FD as loan security. This way, you can get the loan amount you need. The process of taking loan against fixed deposit has important steps to follow.

Step-by-Step Process of Availing a Loan Against Fixed Deposit

Submit the Loan Application: You can apply online or at a bank branch. Provide your details and FD info.
Verification and Approval: The bank checks your FD and decides on the loan, usually 60-75% of your FD’s value.
Loan Disbursement: After approval, the money goes into your account, usually within a day.
Repayment: Pay the loan back as a lump sum when the FD matures or choose a flexible plan. There are no fines for early payment. The bank deducts the loan from the FD when it matures.

Learn how to get a loan against fixed deposit and the how to get loan against fd steps. This knowledge lets you easily use your FD as loan security. You can then get the funds you need.

“Getting a loan against your FD can be smart. It gives you quick cash and keeps your FD benefits safe.”

Loan Amount and Interest Rates

When you consider loans against fixed deposits (FDs), the max loan amount and interest rates matter a lot. Banks usually let you borrow up to 75% of the FD’s value for cumulative deposits, and up to 60% for non-cumulative ones. So, with a $100,000 FD, you might get a loan for $75,000.

The loan’s interest rate against an FD is often 2% more than the FD’s rate. If your FD is earning 5% interest, the loan’s rate would be about 7%. But, because your FD keeps earning, the real rate you pay may be lower. This could mean a $85,000 loan on a $100,000 FD might have an interest rate as low as 1.1%.

Determining the Maximum Loan Amount

Banks typically offer up to 75% of the FD value for cumulative deposits
For non-cumulative deposits, the maximum loan amount is usually up to 60% of the FD value

Calculating Interest Rates

The interest rate on the loan is usually 2% above the FD rate
For example, if your FD earns 5% interest, the loan against FD interest rate would be around 7%
Due to the ongoing FD earnings, the effective interest rate on the loan is even lower
For a $85,000 loan against a $100,000 FD earning 5% interest, the effective interest rate can be as low as 1.1%

It’s vital to grasp the maximum loan amount against FD and the interest rates on loan against fixed deposit. This knowledge helps you wisely choose if borrowing against your fixed deposit is a good financial move.

Repayment Options for Loan Against FD

Repaying a loan against fixed deposit is easy and flexible. Borrowers have many options to repay it well.

Interest Payments

The loan’s interest is cut from the interest your fixed deposit earns. It happens monthly, quarterly, or yearly. There’s no extra effort to pay interest separately.

Principal Repayment

You may pay the principal all at once when the loan ends.
Or, you can make flexible, smaller payments towards the principal while the loan is active.

Loan Tenure

The loan period matches your fixed deposit’s time. You need to finish paying before or when the deposit matures. This makes everything work in harmony.

Premature Withdrawal

If you pull out your fixed deposit early, the remaining loan is taken off from what you get back. This makes things simpler when paying back the loan.

Renewal

Sometimes, you can restart the loan with the deposit, based on the lender’s rules. This chance keeps your financial situation smooth and ongoing.

Knowing all these repayment options for a loan against fixed deposit helps borrowers choose wisely. It makes your financial journey smoother.

Applying for a Loan Against FD Online

Getting a loan against your fixed deposit (FD) is now simple, all thanks to online options. Whether you need cash quickly or aim to dodge early withdrawal charges, applying online is easy. This method makes getting a loan against your FD hassle-free.

Guidelines for Submitting an Online Application

To get a loan against fixed deposit online, just follow a few steps:

Start by visiting the lender’s website, then hit “Apply” or “Get a Loan”.
Enter your mobile number and verify with the one-time password (OTP) you receive.
Access the customer portal next. Choose the FD account for your loan.
Click “Get a Loan Against FD” and type in how much you need.
Then, an OTP is sent to you for finalizing your online application for a loan against fd.

After applying, the loan is usually in your bank within a day. This quick, online approach means you get the money you need fast. Plus, you skip the need to go to a bank branch or deal with lots of paperwork.

“The convenience of applying for a loan against FD online has been a game-changer for me. It’s quick, efficient, and allows me to get the funds I need without any unnecessary delays.”

Just follow the steps above to easily apply for a loan against fixed deposit. You’ll get to enjoy competitive interest rates and easy payment plans.

When to Consider a Loan Against FD

Thinking about taking a loan against your fixed deposit (FD)? It could be wise in certain situations. Knowing when it’s a good idea helps you manage your finances better.

Scenarios to Consider a Loan Against FD

Urgent Cash Needs: Need money fast and don’t want to lose your FD’s benefits? A loan against FD is a smart choice.
Avoid FD Penalties: By not breaking your FD, you can still earn interest while handling your financial needs with a loan against FD.
Better Than Personal Loans: Loan against FD usually charges less interest than personal loans or credit cards, saving you money.
No Credit Check: These loans don’t rely on your credit score. They’re backed by your FD, so they’re great if you have bad credit.

Thinking through these points helps you see if a loan against FD is right for your situation. This way, you can make the best choice for your finances.

“A loan against your fixed deposit can be strategic, offering flexibility and saving costs in the right situations.”

Also Read : Buying a Home Overseas: Understanding International Mortgage Options

Conclusion

In conclusion, borrowing against your fixed deposit (FD) is a smart move. It’s a way to get cash without losing your investment. You’ll enjoy lower interest rates. Plus, the process is easy and the terms are flexible. There’s also no extra fees for paying back early.

Borrowing against your FD means you can still earn from it. The process is simple to understand and handle. It’s great for quick money needs or improving your finances. A loan like this is helpful and straightforward to use.

All in all, a loan tied to your FD is a win-win. It adds value to your financial plan and doesn’t waste your investment. You get the money you need without troubling your future finances. It’s a wise choice for financial flexibility.

FAQs

Q: How does a loan against fixed deposit work?

A: When you take a loan against your fixed deposit, you pledge the fixed deposit amount as security to the bank or financial institution. In return, you can obtain a loan with the fixed deposit as collateral. The amount of the loan usually depends on the value of your fixed deposit.

Q: What is a loan against FD?

A: A loan against fixed deposit is a type of secured loan where you can take out a loan by using your fixed deposit account as collateral. It allows you to access funds without breaking your fixed deposit.

Q: How can I apply online for a loan against fixed deposit?

A: To apply online for a loan against an FD, you typically need to visit the bank’s website or online portal, fill out the loan application form, and provide the necessary details regarding your fixed deposit and loan requirements.

Q: What are the benefits of taking a loan against an FD?

A: Taking a loan against a fixed deposit is a quick and convenient way to get a loan as it is a secured loan with the fixed deposit serving as collateral. It also usually comes with a lower interest rate compared to other types of loans.

Q: What should I know before taking a loan against my fixed deposit?

A: Before taking a loan against your fixed deposit, it’s important to understand the terms and conditions of the loan, including the interest rate, repayment terms, and any fees or charges associated with the loan.

Q: Can I avail of a loan against my fixed deposit from any bank?

A: Yes, you can avail of a loan against your fixed deposit from most banks or financial institutions that offer this type of secured loan. However, the loan interest rate and terms may vary depending on the bank.

Q: Is a loan against fixed deposit considered a short-term loan?

A: Yes, a loan against a fixed deposit is usually considered a short-term loan as it is based on the term of the fixed deposit used as collateral. The loan is typically repaid once the fixed deposit matures.

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