Can you take a loan against bank fixed deposits?

Updated: April 16, 2019 8:19 AM

The bank which has issued the FD will be in a position to offer you a loan. The loan amount will be less than the principal and the interest on the loan will be an incremental amount on the rate which you earn on your FD.

You can take a loan against bank fixed depositsYou can take a loan against bank fixed deposits

Can I pledge my fixed deposits to get a short-term loan from a bank?
– A Ujjwal

Absolutely. The bank which has issued the FD will be in a position to offer you a loan. The loan amount will be less than the principal and the interest on the loan will be an incremental amount on the rate which you earn on your FD. On maturity, if you have not repaid the loan, the proceeds will be used to pay off the dues.

I took a car loan last month. Now I have to go abroad for five years. Can I sell the car to the bank and adjust the loan amount?
—Utsav Lal

Yes, you may sell the car but not to the bank. Find a buyer, take no-objection certificate (NOC) to sell from the bank, the buyer will pay a part of the proceeds to the bank equivalent to the loan outstanding, and the remaining portion will come to you as sale proceeds. You also have to sign RTO transfer forms, for which the bank will guide you.

Why do banks increase lending rates immediately for existing home loan borrowers when the RBI raises rates and take a long time to reduce rates when RBI reduce rates?
—Praful Yadav

This has been true in the past. However, thanks to a PIL at the Supreme Court, from April 1, 2019, RBI has told banks to follow new external benchmark for loans for home, auto, etc. Going forward, monetary transmission process will be fast.

I had taken a home loan in 2006. Till now, I have paid interest amount which is more than the principal. If I prepay, will I have to pay any penalty?
—Ved Sawarn

If what you say is true, you would have taken the loan at a very high-interest rate of about 12%. Typically, it takes about 200 EMIs, to make the interest component equal to the principal amount. That said, you may fully pre-pay the loan without any penalty if your loan is on a floating rate of interest. If you had availed fixed rate loan, there will be penalty on pre-payment.

Can I take loan against property (LAP) and use that money for my son’s higher education abroad?
—Y S Raman

Yes, LAP can be taken for any purpose. However, I suggest you take an education loan (you can get a larger amount by secur-ing the education loan with the property) at a lower interest rate as compared to LAP, as interest rate on LAP would be higher.

(By Chaitali Dutta. The writer is founder, AZUKE Personal Finance Advisory (www.azukefinance.com))

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