There are several hardships in life for which one does not exactly have a genie in a bottle to blow away financial worries. Or what if there is but we hardly look for him in the right spot? So, the next time you find yourself, or a friend, stressed and confused with a sudden financial emergency, think of a magic lamp called Fixed Deposit. Yes, consider taking a loan against fixed deposit. It’s not only abracadabra-easy; it’s also a smart choice.

The Plus Sign

You need to just rub away some questions and what-ifs by going through these advantages and factors that come into play with a fixed deposit alternative.

  • Terms of the loan: The available amount and tenure gets an immediate good level and favourable posture for you as the fixed deposit works as a steady security point for the lender. The possibility of no preclosure charges is also a big advantage
  • Interest Rate in a loan against fixed deposit is also computed in a way that favours you with flexibility and effective help in times of an emergency
  • A loan against fixed deposit  is usually cheaper than a personal loan and the processing time is way simpler and faster than what operates under other options
  • Processing fees also move to a lower bracket and the approval is swift when bank has to only mark a lien
  • Repayment of loan against fixed deposit can be structured very easily as this loan is taken as demand loan. So apart from the presence of an EMI like repayment schedule, an overdraft option equips you with a renewable line
  • Often the ease of paying only interest is an attractive advantage with loan against fixed deposit
  • Impact on Credit Score also works wonderfully and positively in your favour as you come across as a disciplined debtor with a carefully constructed plan.

Proceed with Prudence

A loan against fixed deposit is a form of short-term debt raised quickly with existing means. The advantages play out differently for cumulative and non-cumulative deposits. Also, the percentage of the amount of FD determines the loan ease for you but often the maximum amount can be as much as 90 per cent. Interest rates are slightly higher for loans taken from other sources than the one for FD. Some banks also offer overdraft facility against FD as per individual policies. A minimum loan amount limit operates for many banks.

One should keep in mind that the loan tenure is limited to deposit tenure. Also, consider a bank’s additional restrictions on loan tenure, if applicable. The repayment tenure is often working parallel to the FD tenure so being disciplined with time works as much in a loan against fixed deposit as with other means, albeit, you now have the cushion of the FD maturity.

Financial needs and plans often change as per situation. Tax-saving deposits would need a different assessment. Earning low interest on FD and paying higher on loan is not a smart and financially-prudent way. The post tax FD interest also changes this decision and calculation.  Premature exit penalties are also important areas of personal choices of finance. Assess these points well and fast with emerging digital lending platforms that do not just process money but apt advice fast too.

Personal Loan vs. Loan against FD

Confused what suits you more – a personal loan or a loan against Fixed Deposit? Here’s an easy chart to help you decide –

Parameter Personal Loan Loan Against FD
Loan Amount Up to Rs. 35 lakh Up to 90% of your FD amount
Loan Tenure Up to 5 years Till maturity of FD
Documents Required Proof of Identity; Proof of Address; Proof of Salary None
Interest Rate 14 – 30% per annum 2-5% higher than return rate on FD
Processing and Foreclosure Fee Starts at 2% of loan amount None

Sometimes standalone personal loans work better than a loan against fixed deposit but everything depends on the specific amount and pressures of money you are dealing with. If you have a corresponding FD amount available in your account, then a loan against fixed deposit can be a suitable option. But, in case of different amount and tenure needs where an FD does not align well, one can opt for a personal loan instead. Mostly, it’s suitable to take a personal loan if you require a smaller amount and can pay it back in a short duration. 

Hope this article helps you make the right decision. Please ask your queries and doubts in the comment section below.