A loan against fixed deposit (FD) is a type of secured loan where you can borrow money by pledging your existing fixed deposit as collateral. It's a convenient way to meet a financial need without prematurely breaking your FD, which can lead to a penalty and loss of interest.
Key Features
- Pledged Security: Your fixed deposit with the bank serves as the security for the loan. This makes it a secured loan.
- Lower Interest Rates: The interest rate on a loan against an FD is typically lower than that of an unsecured loan like a personal loan. The interest rate is usually a small percentage 2% above the interest rate of the pledged FD.
- Loan Amount: The maximum loan amount you can get is a percentage of the value of your FD, usually ranging from 75% to 90%.
- Repayment: The loan tenure cannot exceed the maturity period of the FD. If the loan is not repaid by the time the FD matures, the bank can use the FD proceeds to settle the outstanding loan amount.
- Minimal Documentation and Quick Processing: Since the bank already holds your FD, the process is generally hassle-free with minimal paperwork and no requirement for a credit score check.
Typical Eligibility Criteria
- FD Holder: The facility is generally available to individuals, Hindu Undivided Families (HUFs), trusts, associations, and firms who hold a fixed deposit with the bank.
- FD Status: The FD must be free from any lien, restraint, or encumbrance.
- FD Type: Loans are generally not provided against tax-saving FDs.
- Minor's FD: A fixed deposit in the name of a minor does not qualify for this facility.
How to Apply
- Contact the bank's branch directly.
- You will be required to fill out a simple application form.
- Pledge your FD receipt with the bank.
