What is a Loan against Fixed Deposit?

Loan against FD (Fixed Deposit) is a type of secured loan where customers can pledge their fixed deposit as security and get a loan in return. The amount of loan depends on the FD deposit amount. This can go up to 90% – 95% of the deposit amount. During a cash crunch or emergency, people tend to look for loans from a lot of sources. One of those sources can be getting loans against fixed deposits (FD) from banks. This is a time-efficient way of getting a short-term loan. Instead of breaking the FD prematurely, depositors can easily apply for a loan against their FD with the bank. When availing loan against fixed deposit, banks keep customer’s FD as the collateral. This makes the loan thus raised secured. Since it’s a secured loan, interest charged for the same is cut short. In case the loanee is not able to repay the loan amount, the bank can easily procure it from the FD amount. Usually, this amount is settled at the time of maturity.

Who can Apply for a Loan against FD?

• Loan against fixed deposits is extended to all the fixed deposit holders, be it individual holder or those with joint accounts
• FD in the name of a minor does not qualify for this facility
• Investors of a 5-year tax-saving FD cannot apply for this type of loan

Benefits of Loan against FD

• Lower interest rates compared to other types of loans like a personal loan (0.5% – 2% above the applicable FD rate)
• No need to break FD and go for premature withdrawal thus suffering a loss of interest on FD
• No processing fees charged
• Can be availed against domestic as well as NRI FDs
• Can be repaid as a lump sum or in installment (not later than FD tenure)