Personal Loan

Should I Take a Loan Against A Fixed Deposit To Buy a Flat?


Do you have any thoughts about purchasing a new flat? Do you think loans against fixed deposits (FDs) are sufficient investment tools that would enable you to buy a flat? Is a loan against FD better when you need money to match the price of a new flat?

Financial institutions often lend you up to 75% of your cumulative FD’s value and 60% of your non-cumulative FD’s worth. Let’s read about how getting a loan against a fixed deposit may be a better choice for you in more detail. 

What Is A Loan Against Fixed Deposit

Borrowers can rest easy, knowing that the principal amount of their fixed deposit will serve as collateral for their loan. The sum depends on the primary deposit amount consumers have made with the bank. In some cases, consumers can withdraw up to 95% of their deposits from their bank, while in others, they may withdraw as little as 85%.

Pros Of Loans Against A Fixed Deposit

The benefits of borrowing money against a fixed deposit have been outlined here.

  •     Low-interest rates

A reduced interest rate is offered on the loan secured by a fixed deposit.

  •     No extra fee

There are a few banks that do not impose any sort of processing fee. In addition, there are financial institutions whose fees are significantly lower than the average of other loans against FD options.

  •     Hassle-free process

Applying for a loan secured by a fixed deposit is a simple process as there is a minimum amount of paperwork required. Having most or all of your documentation on file at the bank reduces the amount of paperwork you’ll need to complete.

  •      No need to withdraw from the FD

There is no reason to withdraw from your FD when you can easily borrow money against it.

  •      No maximum credit score is required

The major benefit of applying for a loan against a fixed deposit is that there is no credit score verification. The loan against the fixed deposit account is available regardless of your credit score.

Cons Of Loans Against A Fixed Deposit

The drawbacks of borrowing money against a fixed deposit have been outlined here.

The bank has the right to take whatever amount is in the fixed deposit account to reimburse any loan against FD that was taken out against it and that was not repaid by the borrower.

The time period for paying the loan against a fixed deposit cannot exceed the time allowed for the fixed deposit to mature.

Main Aspects Of Loan Against Fixed Deposit

The idea of taking out a loan against a fixed deposit is brilliant, as it includes several crucial aspects that are especially useful for long-term savings.

  •      Low-interest rates

The interest rate on a loan secured by a fixed deposit is typically 25 percentage points lower than the rate offered by banks for unsecured personal loans. Therefore, the equated monthly instalments (EMIs) on loans secured by deposits are likewise modest.

  •      Loan amount as per the FD fund

Your eligibility for a personal loan and the amount you are ultimately approved for depends on a variety of variables, including but not limited to your credit history, income level, income tax return, and other documentation. However, the principal amount placed in the fixed deposit will determine the maximum loan amount you can apply for if you choose to borrow against the fixed deposit. If you have put a significant amount of money into an FD, you should be able to take out a sizeable loan against it.

  •     No penalty for prepayment

Banks typically charge prepayment penalties because they stand to lose money on the interest you’re supposed to pay them. Prepayment of a loan secured by a fixed deposit does not result in any loss of interest to the lending institution.

Documents Required For Fixed Deposit

  •      Your application form, filled out in its entirety and including your signature.
  •     A legal contract with all necessary signatures.
  •    Receipts for fixed and term deposits that have been lawfully executed and are accepted by the bank.

Eligibility Criteria For Loan Against Fixed Deposit

  •      One needs to be a legal resident of India.
  •      The account might be set up in the name of a family trust.
  •      The Hindu nuclear family can use it.
  •      It can be used by any group or organisation.
  •     It can be used by various businesses (sole proprietorships, corporations, partnerships, etc.).
  •     Loans against fixed deposits are made available to everyone who has an individual or joint fixed deposit account.
  •     Those who have money in a 5-year tax-deferred fixed deposit account will not qualify for this loan.
  •      It is likewise inappropriate to have a fixed deposit account in the name of a child.

Summing Up

The purpose of this article is to comprehensively examine the question, should I take a loan against a fixed deposit to buy a flat? You should choose wisely whether a loan against FD is the right choice for you. A loan against a fixed deposit is an excellent option for borrowing money. Consider your fixed deposit if you can repay it within the loan agreement period. When you require less than your FD’s worth, this loan is good. If so, get a small unsecured loan. If your FD is for a long-term goal you cannot compromise on and you doubt your repayment capabilities, don’t risk it. Visit Piramal Finance for more in-depth, finance-related articles.