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Opting for a loan against FD is a time-saving and efficient way to meet your short-term financial requirement and is a better option than availing a personal loan. Here is why you must take a loan against your fixed deposit to meet the need of funds for any emergency.
What is a loan against fixed deposit?
A loan against fd is a type of fixed deposit that can be availed against the security of your fixed deposits.
Features of a loan against fixed deposit:
- A loan against fixed deposit can be availed as an overdraft or term loan.
- You can get upto 90% of the funds deposited in an FD account. The limit for the loan amount is lower for an overdraft.
- Investors can take a loan against a fixed deposit without breaking an FD.
- The rate of interest on a fixed deposit is 0.5%- 2% higher than FD rates.
- You must repay the loan amount before the end of maturity of your FD investment.
Who is eligible for a loan against fixed deposits?
- A loan against fixed deposits can be availed by anyone who has an FD Account.
- FD accounts opened singly or as joint holders are eligible for a loan against FD.
- If an FD account is opened in the name of a minor, then the account is not eligible for a loan against fixed deposits.
- Also, a loan against fixed deposits cannot be taken against tax-saver fixed deposits.
Why should one take a loan against fixed deposit?
A loan against FD offers the following benefits to the borrowers:
- Lower Interest Rates: The rate of interest on a loan against FD is lower than a personal loan. Banks usually charge an interest rate of 0.5%-2% higher than FD rates.
- No processing fees: Unlike any other loans, a loan against FD does not charge any fees for the processing of a loan. Thus, it equates to lower payments on the loan.
- Minimal documentation: As you have already submitted the essential documents with the bank; therefore, you can avail a loan against FD with minimal documentation. You don’t require to submit documents for Income Proof to take a loan against FD.
- No prepayment charges: Also, a loan against fixed deposits does not have any prepayment charges if you repay the loan before the tenure of investment. However, you may have to pay prepayment charges on any other loans.
- No CIBIL Score required: If you take a loan against fixed deposits you don’t need to have a good CIBIL score as a loan against FD is a secured loan and thus banks do not check your credit score to provide a loan.
- No need to break your FD: One of the most significant advantages of taking a loan against FD is that you do not need to break your FD and thus you can keep earning interest on your investments.
What if you withdraw your funds from FD?
Instead of taking a lounge against FD most of people prefer to break their FD, however it is not a good idea because of the following reasons:
- Banks charge a penalty on premature withdrawal of fixed deposits.
- You will lose out interest on your fixed deposits.
Conclusion: Thus, investors must calculate the advantages of taking a loan against FD with breaking a FD and then take a decision accordingly.