Can I Get a Loan Against an FD

Do you need immediate funds for your medical treatment or family vacation? If yes, then take out a loan against your Fixed Deposit (FD) instead of withdrawing your FD prematurely. In this article, you will understand how to avail of a loan against an FD and the benefits.

A Fixed Deposit is one of the most convenient ways to increase wealth at a fixed interest rate. A loan against the FD will always help you to survive your cash crunch and financial emergencies. You can opt for a loan against your FD in two ways. They are:

• Loan against FD
• Request an overdraft (OD) from a bank or NBFC (Non-Banking Financial Company).

Introduction to a Fixed Deposit

A fixed deposit is an investment plan to maximise your savings with assured returns. Booking an FD (Fixed Deposit) is easy and convenient. You need to invest a lump sum of money for a fixed tenure and interest rate. You can choose between a bank or an NBFC to start a fixed deposit. Each financial institution offers a pre-decided interest rate on a fixed deposit. When we compare, an NBFC provides a higher interest rate than banks. Shriram is the leading NBFC with a trust of 45 years and 2.2 million customers and offers an 8.75% interest rate on a fixed deposit. Let us read ahead to understand more about a loan against an FD.

Loan Against an FD

Applying for a loan against an FD is similar to any other loan process. One can lend money from financial institutions as a single payment and pay them in Equated Monthly Instalments (EMIs). Generally, banks/NBFCs charge about two per cent higher than the respective FD interest rate when they offer a loan. For example, if you book an FD at 6%, the interest rate on the loan against your FD will be 8%. However, this is beneficial as one can earn the interest on the deposited amount in a fixed deposit. Hence, taking a loan against FD works better than premature FD withdrawal.

Eligibility Criteria for a Loan on FD

Any individual above the age of 18 years is eligible to avail of the loan against FD offered by various banks/NBFCs.

• Indians and NRI residents who have invested in fixed deposits (FD) can take a loan on FD.
• Family Trusts, Hindu Undivided Families, Societies, Partnerships and Companies can avail of a loan against FD.

Note: Minors and those who have invested in five-year tax-saving fixed deposit plan is not eligible to avail for a loan.

Documents Required to Apply for a Loan against an FD

To avail of a loan against a fixed deposit, you will need to provide the following documents:

• Duly signed application form
• Duly signed agreement
• Fixed Deposit Receipt (FDR) given in favour of the banks/NBFCs

Please note that the following documents vary according to your lending institutions.

What is an Overdraft against FD?

Banks/NBFCs can provide customers with a loan against their fixed deposit as an overdraft facility. The bank/NBFCs offer you an Overdraft or OD limit lower than your deposit amount, but the interest rate on the OD charged will be higher than your FD interest rate.

The interest is charged only on the overdraft amount and not on the absolute limit. For example, if you have an FD of Rs. 1 lakh and your OD limit is 90%. Suppose you take a loan of Rs. 50,000, which is 50% of the deposit amount. Hence, the interest shall be charged only on 50% of the deposit amount you take as a loan. The remaining 90% of the deposit amount is not charged. There is no fixed duration for repaying an overdraft. Therefore, you will pay the interest as long as you hold the money.

Benefits on Loan on FD

No prepayment charges

You can avail of a loan against your FD without prepayment charges/processing fees. You are completely exempted from the burden of processing fees as a token of trust.

Minimal Documentation

Minimal paperwork is required as you already have an FD account with the financial institution. However, it is suggested that you keep all the necessary documents ready to complete the process.

Collateral-Free

As your fixed deposit serves as adequate collateral or security for your loan, you do not need other assets to offer as collateral.

No Need for Credit Score

Your eligibility criteria do not include CIBIL scores or any other credit score. There is no additional requirement for repayment of the loan other than your fixed deposit. Thus it is a better option for individuals with low credit scores to borrow.

It is always advised to check the repayment terms before applying for a loan against a fixed deposit. One can repay the loan in EMIs or as a one-time payment. You need to repay the loan before the maturity of the fixed deposit. As the fixed deposit is the collateral or security of the loan, if you cannot repay the loan before maturity, the bank or the financial institution will recover the loan from the fixed deposit amount.

Stay Stress-Free with an FD

Now that you are aware of the pros of applying an loan against an FD, it is highly recommended that you have a fixed deposit as part of your investment portfolio. You can start your investment journey with Shriram and be assured that your savings are sure to grow.

Key Highlights

• A fixed deposit is an investment plan to maximise your savings with assured returns.
• Banks/NBFCs can provide customers with a loan against their Fixed Deposit as an overdraft facility.
• It is always advised to check the repayment terms before applying for a loan against a fixed deposit.
• Shriram is the leading NBFC with a trust of 45 years and 2.2 million customers and offers an 8.75% interest rate on a fixed deposit.