When faced with a financial crunch or unexpected expenses, finding quick and reliable funding becomes crucial. One effective solution that often goes overlooked is taking a loan against your Fixed Deposit (FD). Instead of breaking your FD prematurely and losing out on the accumulated interest, you can leverage this asset to secure a short-term loan from your bank. This approach not only provides immediate access to funds but also helps maintain your financial stability.
Understanding Loans Against Fixed Deposits
A loan against FD is a secured loan where your fixed deposit serves as collateral. The amount you can borrow typically ranges from 90% to 95% of your FD’s value, making it a convenient option for those who need funds but don’t want to disrupt their savings.
Who Can Apply for a Loan Against FD?
- Eligible Applicants: All FD holders, whether individual or joint account holders, are eligible to apply for this loan.
- Ineligible Applicants: Minors holding an FD and investors in 5-year tax-saving FDs are not eligible for this facility.
Benefits of Opting for a Loan Against FD
Choosing a loan against FD offers several advantages:
- Lower Interest Rates: The interest rates are generally lower than those of personal loans, typically ranging from 0.5% to 2% above the FD rate.
- No Premature Withdrawal Penalty: Since you’re not breaking the FD, you avoid losing the interest accrued.
- No Processing Fees: Most banks do not charge processing fees for this type of loan.
- Versatile Repayment Options: You can choose to repay the loan in a lump sum or through installments, as long as it’s within the FD’s tenure.
- Applicable for Domestic and NRI FDs: This option is available for both domestic and non-resident Indian fixed deposits.
Using FD as Collateral
When you take out a loan against your FD, the bank holds your fixed deposit as security. This arrangement makes the loan secured, resulting in lower interest rates. In case you’re unable to repay the loan, the bank can recover the owed amount from your FD, typically upon the maturity of the deposit.
Read also:-Â Navigating the Financial Landscape: Insights on Insurance and Loans [2024]
Credit Card Against FD: An Alternative Option
Besides loans, fixed deposits also offer the option of obtaining a credit card. A credit card against FD is a secured card, where your FD determines the credit limit, usually between 75% and 85% of the deposit amount.
Several banks, such as SBI and Kotak Mahindra, offer these credit cards, often requiring a minimum FD of Rs. 25,000. For those seeking a more economical option, the Paisabazaar Step Up Credit Card in collaboration with SBM Bank (India) Ltd. provides a budget-friendly secured credit card solution.
Loan Limits Across Major Banks
Here’s a comparison of the loan limits offered by various banks:
| Bank | Loan Limit |
|---|---|
| State Bank of India | Up to 90% |
| ICICI Bank | Up to 90% |
| Bank of Baroda | Up to 95% |
| Axis Bank | Up to 85% |
| HDFC Bank | Minimum Rs. 25,000 |
| Citibank | Up to 90% |
| Kotak Mahindra Bank | Up to 85% |
| Yes Bank | Up to 90% |
| Punjab National Bank | Up to 90% |
| Canara Bank | Up to 90% |
Note: Loans against FD are not available for 5-year tax-saving fixed deposits.
Understanding the Overdraft Facility
A loan against FD is often provided as an overdraft facility. The overdraft limit is typically lower than the FD amount, and interest is charged only on the amount utilized, not on the entire overdraft limit.
For example, if you have an FD of Rs. 1 lakh with an overdraft limit of 90%, and you withdraw Rs. 50,000 (50% of the FD), interest will only be charged on the Rs. 50,000.
Frequently Asked Questions
What is the interest rate for a loan against FD?
Banks and NBFCs usually charge 0.5% to 2% above the applicable FD interest rate.
Can senior citizens apply for a loan against FD?
Yes, as long as the FD is not in the name of a minor, senior citizens can avail of this facility.
Are there any charges for taking a loan against FD?
Typically, no additional charges or processing fees are levied, although interest rates may apply, usually up to 2-3% above the FD rate.
Can I apply for a loan against FD online?
This depends on the bank. Some banks offer this service through internet banking.
What documents are needed to apply for a loan against FD?
You may need to submit an application form, the FD receipt, an ECS mandate, and a canceled cheque for non-cumulative FDs.
How much can I borrow against my FD?
The loan amount can go up to 95% of the FD, depending on the bank.
What is the repayment tenure for a loan against FD?
The loan must be repaid before the FD matures.
What is an FD lien?
A lien is a claim the bank holds on your FD. It ensures that if you default on the loan, the bank can recover the amount from the FD.