An investor can avail a loan from their fixed deposit, at the same time also continue to earn interest on the deposit, even after availing a loan against it.
Many people in India still prefer to invest their money in Fixed Deposits (FDs). Fixed deposit is considered one of the most popular financial instruments and the attraction towards FD is because of the safe and secure nature of the investment. This investment offers guaranteed returns, flexibility and various other features such as it comes with a wide range of tenures. You can choose from 7 days to as long as 10 years.
During an emergency, it also gives you the option of taking a loan against your FD instead of breaking the investment. An investor can avail a loan from their fixed deposit. Experts suggest borrowers can opt for a loan against FD when they are looking to avail a loan at a better rate when compared to personal loans. The interest rate on personal loans usually ranges from 14 to 30 per cent per annum. Also, the borrower continues to earn interest on the deposit, even after availing a loan against it.
If you are also in need of some instant money, find out how does this work and things to keep in mind while opting for one:
What is it?
Loan against Fixed Deposit is an alternative given to the investor instead of breaking the deposit prematurely. This loan is given in the form of an overdraft against the investor’s deposited amount.
Amount of Loan
Generally, banks allow around 70 to 90 per cent of the deposit amount while sanctioning a loan on FD. There is no standard set on the amount of loan that can be sanctioned hence, some banks also offer even more than this. Normally, it varies from bank to bank and on the amount deposited.
For a loan of Fixed Deposits, the interest rate charged is usually around 2 to 2.5 per cent more than the interest paid by the bank on the deposit. The interest rate, however, varies from bank to bank.
Unlike home and personal loans, generally, banks do not charge any kind of processing fees on loan against fixed deposits. Although some banks charge low fees for the loan.
The term of the deposit itself is the maximum loan tenure offered for a loan against Fixed Deposit. The payment procedure of loans on FD is similar to home loans, where the borrower pays the EMI’s on a regular basis or as decided by the lender.
Usually, banks do not levy any penalty in case of foreclosure on the loan against FD.