Interest rates are a crucial aspect of any loan, and the same holds true for loans against fixed deposits (FDs). An FD loan, as the name suggests, is a loan that is availed against an FD account. These loans are often preferred by individuals who require quick access to funds but do not want to liquidate their FD.
When it comes to interest on loan against FD, it is essential to keep in mind that they are typically lower than the interest rates charged on personal loans or credit cards. This is because the borrower has already pledged their FD as collateral, which reduces the risk for the lender.
Furthermore, the interest rates offered on FD loans tend to vary depending on a few factors. Firstly, the tenure of the loan plays a crucial role in determining the interest rate. Typically, loans with shorter tenures are offered at lower interest rates than those with longer tenures.
Secondly, the loan-to-value (LTV) ratio is another critical factor in determining the interest rate. LTV refers to the percentage of the FD amount that a borrower can avail as a loan. For instance, if the LTV ratio is 90%, the borrower can avail a loan worth up to 90% of their FD amount. In general, lower LTV ratios are associated with lower interest rates.
It is also worth noting that the credit score of the borrower may impact the interest rates offered on FD loans. A higher credit score is typically associated with lower interest rates, while a lower credit score may result in higher interest rates.
Moreover, it is worthwhile to compare the interest rates offered by different lenders before availing an FD loan. Several financial service providers offer FD loans, and the interest rates can vary significantly.
In conclusion, interest rates on loans against FDs tend to be lower than those on personal loans or credit cards due to the reduced risk for the lender. The interest rates offered may depend on factors such as the tenure of the loan, loan-to-value ratio, and credit score of the borrower. Furthermore, it is crucial to compare the interest rates offered by different lenders before availing an FD loan. By keeping these factors in mind, individuals can make informed decisions about availing FD loans and ensure that they get the best interest rates possible.
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