There are instances when immediate access to funds is needed, yet individuals may wish to avoid high-interest borrowing. This situation often arises when there is a need for short-term financial support.

A loan against fixed deposits (FDs) is a financial product provided by banks and financial institutions in India, allowing individuals to secure a loan using their fixed deposit account as collateral. The amount of the loan typically constitutes a percentage of the fixed deposit’s total value.

The following are important features and information regarding loans against fixed deposits in India:

1. Loan amount

Banks usually offer loans against fixed deposits that range from 70% to 90% of the fixed deposit’s value. The specific percentage may differ among various banks.

Adhil Shetty, CEO of Bankbazaar.com, sayss, “Given that the loan is secured by the fixed deposit, the approval process for a loan against FD tends to be swift and straightforward. The bank possesses the collateral in the form of the fixed deposit, eliminating the need for extensive documentation or income verification.”

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2. Interest Rate

The interest rate applied to loans secured by fixed deposits is typically lower than that of other types of loans, such as personal loans or credit card loans. This rate may be approximately 1% to 2% higher than the interest rate associated with the fixed deposit itself.

3. Tenure

The duration of the loan is usually shorter than that of the fixed deposit. It can vary from 7 days to 5 years, contingent upon the policies of the bank and the specific terms and conditions of the loan.

4. Eligibility

The criteria for qualifying for a loan against a fixed deposit can differ among banks. Generally, the applicant must be a resident of India and possess a fixed deposit with the respective bank.

5. Documentation

The paperwork required to obtain a loan against a fixed deposit is relatively minimal. The applicant is typically required to provide the fixed deposit receipt, a completed loan application form, and documents verifying identity and address.

6. Repayment

The loan secured against a fixed deposit is typically repaid through Equated Monthly Installments (EMIs). The EMI is determined by factors such as the principal loan amount, the applicable interest rate, and the duration of the loan.

7. Prepayment

If one opts for prepayment of the loan against a fixed deposit, it may incur a penalty fee, which can differ among various banks.

8. Loan disbursement

Generally, the loan amount is released within a few days following the approval of the loan application.

9. Impact on FD

While the fixed deposit continues to accrue interest, the loan taken against it will also incur interest charges. It is important to note that the interest earned on the fixed deposit will be less than the interest rate charged on the loan.

A loan against a fixed deposit serves as a practical solution for individuals in urgent need of funds who possess a fixed deposit account. The interest rates associated with such loans are usually lower compared to other types of loans, and the documentation process is relatively straightforward.

Nevertheless, it is essential for individuals to thoroughly assess their financial circumstances and consider the implications for their fixed deposit account prior to securing a loan against it.