Loan Against FD: Loan on fixed deposits (FD) is an option that provides funds without breaking investment in emergency. This feature comes with easy conditions and fast approval. However, there are some risks that cannot be ignored. Know how beneficial this option is for you.
What is a loan on FD?
How is the loan process?
What are the benefits of loan on FD?
What are risks and limitations?
When should a loan be taken on FD?
Compare benefits and loss
What is a loan on FD?
Taking a loan on your fixed deposit (FD) can be an easy and convenient way. With this, you can meet the immediate need for money without breaking FD. Banks offer this facility at a slightly higher interest rate than interest on FD. This leads to a suitable option of short-term liquidity. Although. This option looks attractive, but it is important to understand some important things before taking it.
How is the loan process?
When you take a loan against FD, the bank keeps your FD as mortgage. The bank gives a loan of 75% to 90% of your FD value, which depends on the bank’s policy. Interest on your FD continues, but the interest rate on the loan is usually 1–2% higher than the interest of FD. The terms of the repayment are fixed by mutual consent, but it is necessary to repay the loan before FD is matured.
What are the benefits of loan on FD?
The biggest advantage of the loan on FD is that it is a secured loan. In such a situation, it does not require very good credit score or more documents. This loan is approved in a few hours. Neither your FD breaks nor interest on it. There is no prepament penalty in it. You can use it for private expenses, emergency or business needs.
What are risks and limitations?
Although the loan on FD is low risk, it may still have some risks. In case of non -payment on time, the bank can redeem your FD. If the interest rate on your FD is already low, then this option is not very beneficial. Better options may be available for large amounts or long periods. Also, if you have to break FD pre-maturely to repay the loan, you may have to pay a fine.
When should a loan be taken on FD?
Take a loan on FD only when you need money immediately or short term and you do not want to tease your savings. This investment provides you funds on convenient terms while maintaining discipline. But this option is not appropriate when you want to make big purchases or can get cheap options like home loan top-up or secured credit line.