Here, we will discuss loan against fixed deposit or loan against FD
This is a popular form of secured loan
Against your fixed deposits, bank gives you a loan
We will discuss the essential features of loan against FD
Loan against fixed deposit is good way by which you don't have to make a premature exit or premature encashment of FD
It is the most liquid and easy accessible secured loan
It ensures that you don't lose out on the interest income . When the emergency gets over you can repay it
For entrepreneurs and businessmen, it is a handy tool to fund your working capital
Lot of people take loan against FD in the form of overdraft
In a loan against FD, you take a loan against bank fixed deposit
Check out our previous discussions on overdrafts whose playlist links are provided in the description section
The amount you get for loan against fixed deposit depends on the bank
The bank is almost certainly going to give a loan against FD of the same bank
The loan amount can vary from 80% to 95% of the FD amount
The loan amount can range from Rs 25,000 to Rs 5 crore
Tenure of loan against FD can go up to 3 years but it depends on the term of the FD
It can never be more than the term of the FD
You need to pay within the FD term when you take a loan against FD
If you fail to do so, the outstanding amount is deducted from the FD maturity proceeds
You can make regular loan repayment or do it at one go
Tax saving FDs don't qualify for loan against FD
Loan against FD interest rates are among the lowest among loan against assets or secured loans
The interest for the loan is typically 50 basis points or 0.5 percentage points higher than the fixed deposit interest rate
It can be 2 percentage points higher or 200 basis points higher than fixed deposit interest rate
If you get a loan against FD, don't go for a personal loan since the interest rate will be higher
However, you requirement could be higher than FD amount and loan against FD depends on the size of your FD
When you need cash during an emergency and you can't repay in one credit card cycle, loan against FD makes sense
There is typically no processing charge and it is typically very quick in terms of disbursement
If you have to go for a loan, this is where you start
When your repayment is finished you need to get the lien removed
Most banks offer loan against FD in the form of overdrafts or OD
The credit line created with a loan against FD with your overdraft and you pay only for the overdraft amount used
If you don't repay the outstanding amount for OD by the maturity of the FD, it gets deducted from the maturity amount
The interest rate for overdraft can be 2 percentage points or more, higher than the fixed deposit interest rate
There is no prepayment penalty for loan against FD
Apart from loan against FD, try borrowing from family and friends, avoiding costlier loans