A loan against Fixed Deposit (FD) is a type of secured loan where you can borrow money from a bank or a financial institution by pledging your FD as collateral. This can be a convenient and cost-effective way of meeting your short-term or urgent financial needs without breaking your FD prematurely and losing out on the interest income.
However, before you apply for a loan against FD, you need to know the eligibility criteria, interest rates, repayment options, and other features of this loan. Read on to learn how to avail of a loan against FD via this step-by-step guide.
Step 1: Check your eligibility
To be eligible for a loan against fixed deposit, you need to meet the following criteria:
- You should be the owner of the FD since this facility cannot be availed against another person’s FD, even if you are a joint holder or a nominee
- You should have an FD account with the same bank or financial institution that you want to borrow from
- You should have an FD account that has completed at least three months of tenor
- You should have an FD account that is not linked to any other loan or facility
- You should have an FD account that is not for a tax-saving FD
Step 2: Check the interest rate and loan amount
The interest rate and loan amount for a loan against FD depend on various factors. This includes the bank or financial institution, the type of FD, tenor, and your credit profile. However, some general guidelines are as follows:
- The interest rate for a loan against FD is usually 1% to 2% higher than the interest rate of the FD. For example, if your FD offers an interest rate of 7%, then your loan against FD may charge an interest rate of 8% to 9%.
- The loan amount for a loan against FD is usually up to 90% to 95% of the value of the FD. For example, if your FD has a value of ₹1 Lakh, then you may get a loan amount of ₹90,000 to ₹95,000.
- The tenor of the loan against FD is usually equal to or less than the remaining tenor of the FD. For example, if your FD has a tenor of three years and you have completed one year, then your loan against FD may have a maximum tenor of two years.
You can use online tools such as an FD calculator or loan against FD calculator to estimate the interest rate and loan amount.
Step 3: Apply for the loan against FD
While the application process for a loan against fixed deposit differs across financial institutions, here are some of the steps you may have to follow.
- Visit the website or branch of the bank or financial institution where you have your FD account.
- Fill in the online or offline application form with your personal and financial details.
- Submit the required documents, such as your identity proof, address proof, and FD receipt or certificate.
- Sign the loan agreement and pledge your FD as collateral.
- Receive the loan amount in your bank account or by cheque.
Step 4: Repay the loan
To repay the loan against FD, you need to follow these steps:
- Choose your repayment mode, such as EMI, bullet payment (lump sum payment at maturity), or interest servicing (paying only interest during the tenor or and principal at maturity).
- Pay your EMIs or interest on time through online or offline modes, such as net banking, UPI, debit card, cheque, etc.
Once the borrowed amount has been repaid, the financial institution will release the pledged FD along with the interest amount earned.
A loan against FD is a convenient and cost-effective way of borrowing money without breaking your FD prematurely. However, you need to check your eligibility, interest rate, loan amount, and repayment options before applying for this loan.
You also need to pledge your FD as collateral and repay the loan on time to avoid any penalty or default. By following this step-by-step guide, you can easily secure a loan against your fixed deposit.
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