Fixed deposits, even today, are the go-to investment options for most risk-averse investors. These instruments come with many benefits, among which one of the most popular ones is a loan against FD.
People often resort to high-interest loans during financial emergencies because they do not have the time to complete the research to find the best rate. However, with this financial product, they can now avoid such instances and get funding at a more suitable rate.
What is a Loan Against FD?
Simply put, a loan against a fixed deposit is a distinct category that allows you to borrow money by pledging your term deposit. At times of emergencies, your FD provider will enable you to use their overdraft facility as a secured credit instrument against the deposited FD amount.
When you apply for a loan on FD, the approving organisation issues the requested money as a lump sum, but while repaying, you must choose a favourable EMI tenure and stick to it accordingly.
Different lenders have set varying upper limits of the fixed deposit amount, which can be opted for as a loan. Thus, checking for the particulars on the lender’s website is recommended before applying.
Top Banks Offering Loan Against Fixed Deposit
Here we have listed some of the reputed banks in India that offer an attractive FD loan interest rate:
| Bank | Interest Rate | Loan Amount |
| State Bank of India | 1% more than the concerned FD rate | ₹25,000 – ₹5 crores |
| HDFC | 2% more than the concerned FD rate | Up to 90% of the FD amount |
| Federal Bank | 2% more than the concerned FD rate | Up to 90% of the FD amount |
| ICICI Bank | 2%-3% more than the concerned FD rate | Up to 90% of the FD amount |
| Karur Vysya Bank | 5%-7% | Up to 90% of the FD amount |
| Axis Bank | 2% more than the concerned FD rate | Starts from ₹25,000 |
Disclaimer: As shown in this table, the relative rate of a loan against FD interest rate is subject to change each quarter. Quarterly the RBI may adjust the repo rates by analysing the demand-supply ratio of financial products in the market to curb the effects of inflation. This, in turn, hikes or lowers the rate of a loan against FD.
Benefits of Opting For a Loan Against FD
Here you can see some of the widely-accepted benefits of a loan on FD:
Seamless application method
You may apply for a secured loan against your FD amount by following a few simple steps both via online and offline channels. As the loan provider already maintains your personal and banking details in their database, minimal documentation is required while applying.
No minimal credit score is needed
Banks give up to 90% of your cumulative or non-cumulative FD as loans assuming the term deposit to be collateral. For instance, when you apply for a loan on FD from SBI, expect up to 90% of the FD scheme’s amount to be sanctioned as a loan. But you don’t need to meet any minimum credit score to get approval for this loan. You can apply for this loan even if your credit score is bad.
Zero pre-payment charges
As a standardised practice followed by almost any bank in India, the borrower is not required to pay any penalty if they wish to pay off their remaining balance early.
Low interest rates
Banks usually charge 0.5% – 2% extra of the applicable FD rates as interest for a loan on fixed deposit. Also, these rates are much lower when compared to other unsecured loans making the schemes advantageous for borrowers.
How to Apply For a Loan Against FD?
Applications for loan amounts against FDs are accepted online and offline. Here you can learn about two of these methods, one after the other.
Online method
For this, you must first activate a net banking account against your bank’s regular savings account. For instance, if you wish to opt for a loan against FD from HDFC, first contact their banking officials and ask them to assist you in setting up the internet banking profile.
After this stage, simply follow these steps:
Step 1: Visit the official website of your preferred bank.
Step 2: Log in to your internet banking account, entering the customised user ID and password.
Step 3: Navigate to the fixed deposit section and select the option loan against fixed deposit’.
Step 4: With the help of an FD loan calculator, adjust the parameters to assess a favourable principal and tenure.
Step 5; Next, click on ‘Apply Now’ and wait for the confirmation text via phone number or email.
Offline method
This method takes you to the conventional process of opening a loan account and pledging your FD. For this, first, you must visit any branch of your desired bank and duly fill up the ‘loan against FD’ application form. Along with this form, you must attach the fixed deposit receipt issued by the bank.
While availing of this method, you do not get to access the loan against FD calculator. Thus, it is advised to proceed online.
Eligibility Criteria for Availing Loan against Fixed Deposit
Any Indian resident may apply for a loan against FD when they are officially adults, i.e., above 18 years old. However, these minimum age criteria vary from one lender to another.
Most importantly, you must hold a fixed deposit account with the loan provider to become eligible for the overdraft facility.
Please note that you won’t be eligible to apply for a secured loan against a 5-year tax-saving FD holding. Also, these schemes do not offer premature withdrawals; thus, you must stay invested throughout the tenure.
Documents Required to Avail Loan Against FD
The following documents must be submitted while you are requesting a bank to give a loan against a fixed deposit:
- Application form
- Fixed deposit receipt
- Cancelled cheque (applicable for non-cumulative FDs)
Key Takeaways
Availing of a loan against FD proves to be extremely beneficial, especially when you have met a financial crisis. The EMIs appear to be super affordable when compared to unsecured loans. Also, as the loan amount stays limited, you are bound to make more sound decisions while borrowing.
Lastly, these schemes come with no pre-payment charges, so you can repay the whole outstanding amount at once in case you receive an influx in the form of incentives, bonuses, etc. So, read through all the terms and conditions and then apply for a loan as per your requirements.
Loan against Fixed Deposits: FAQs
The credit provider may charge you penalties if you exceed the approved loan limit without permission. Also, if you extend the overdraft, you may be subject to paying an arrangement fee under certain circumstances.
Once you receive the loan amount, your repayment starts. Before agreeing to the terms, you can use a loan against a fixed deposit calculator to equate the EMIs. Throughout the tenure, you must meet the EMIs on time by either making payments manually or setting up an auto-pay mechanism from a preferred bank account.
The interest rates charged for FD-based loans vary from one bank to another. To learn the specifics about the same, you must refer to the loan provider’s official website. Usually, this figure stays 0.5% – 2% higher than the initially agreed upon FD rate.
If you take a secured loan against your existing FD account and successfully meet the EMI payouts, you eventually maintain a healthy credit report.
