Here’s the complete guide on how to get a loan against a fixed deposit

During a financial hiccup, different funding options come to the rescue. Out of various funding options, loans are one of the most preferable options. It helps you during a crisis without putting much financial burden. People tend to go for both secured and unsecured loans, based on their needs and credentials. However, many cannot go for an unsecured loan because of a lack of credit score. In that case, secured loans come to the rescue where you have to use collateral to get a principal amount. 

Some people use their property as collateral to get a loan, while some use their shares and savings to do so. Fixed Deposits or FDs are a great way to have a loan that can help you during a financial crunch. A loan against a fixed deposit is an effective and time-efficient way to bridge your short-term crisis. Since this is a secured loan, there are some additional benefits that the borrower gets from the bank. 

Do you also want to apply for a loan against FD but are confused about how to? Well, the answer to your dilemma is here. Read on to learn everything about loans against fixed deposits and how to apply for them. 

What is a loan against a fixed deposit and what is its significance? 

A loan against a fixed deposit is financial aid that you take from a lender to cover your needs during a crisis. Here, you have to use your fixed deposit amount as collateral or security to get the loan amount. In return, the lender charges you a specific rate of interest for a fixed period which you are expected to repay within a stipulated time. This is a better way to opt for instead of breaking your fixed deposit prematurely. It will help you cover your requirements during a crisis for a short duration. 

In India, for a loan against FD, you can get a loan amount of about 90% to 95% of the total deposit amount. The loan amount solely depends on your fixed deposit amount and the offer that your bank provides. Besides looking for a loan against fixed deposits, you also have the option to choose a credit card against fixed deposits. Using a credit card against a fixed deposit will also help you to build a credit score over time. 

What are the minimum eligibility criteria to apply for a loan against fixed deposits? 

Now that you have known the significance of a loan against a fixed deposit, let’s find out the minimum eligibility criteria that are required. 

• You must possess a fixed deposit account to be eligible to apply for a loan against fixed deposits. 
• The loan amount you borrow from your lender must be less than the fixed deposit amount. 
• If the fixed deposit which you are pledging is in the name of a minor, you are ineligible to go for a loan against FD. 
• The repaying tenure of the loan cannot be more than the tenure of the fixed deposit. 

How should one apply for a loan against a fixed deposit in India in 2022? 

The process to apply for a loan against a fixed deposit is quite easy and to the point. You can apply for it in both online and offline modes, depending on your convenience. You don’t have to break your fixed deposit to apply for a loan, you can use it rather. 

Like every other loan, for a loan against a fixed deposit, you have to submit an application form with all your details filled in. You have to submit all the legal documents that your lender asks for while applying for the loan. For the proof, you have to show your Fixed Deposit receipt to your lender if your lender asks for it. 

What are some of the benefits of applying for a loan against fixed deposits? 

There are several benefits of applying for a loan against FD in India and they are:

• Low rate of interest:

Since, a loan against fixed deposit is a secured form of loan in which you pledge your FD to get a loan amount, the rate of interest is comparatively low as compared to unsecured loans. 

• No requirement of credit score:

For most of the loans you apply for, you are expected to have a good credit score to prove your creditworthiness to your lender. However, that is not applicable in the case of a loan against a fixed deposit as its eligibility is independent of the credit score. This also helps a lot of borrowers to avail of a loan who have poor credit scores. 

• No prepayment charges:

Many banks charge a prepayment penalty on the borrowers, but in the case of a loan against fixed deposits, you don’t have to pay any penalty. You are eligible to pay the entire loan amount before the tenure of the loan without bearing any extra costs. 

Wrapping it up

As fixed deposits are a very good investment option that yields significant benefits, they can also act as security for availing of a loan. To bridge your short-term financial crunch, loans against fixed deposits are the best way to look for. Their interest rates are nominal, there is minimal documentation and no requirement for a good credit score. You can get up to 95% of the loan amount in most cases, which is another added advantage. But, since you are opting for a loan, you should make sure that the loan is utilised to cover emergency expenses rather than meeting personal requirements like trips and shopping. In case you want to gather more information regarding loans against fixed deposits, you should visit Piramal Finance.