With the increasing need for financial flexibility, more people are exploring the option of obtaining a loan on FD (Fixed Deposit). Leveraging your fixed deposit can be an effective way to access immediate funds without prematurely breaking your FD and forfeiting the interest benefits. This guide elucidates the standard practices prevalent in the financial industry for obtaining a loan against a fixed deposit in 2024.
Understanding Loan on FD
A loan against a fixed deposit (FD) is a secured loan where your FD serves as collateral. Because the risk for the bank or financial institution is minimal (thanks to your FD acting as a security), the interest rates applied to loans against FDs are generally lower than those for unsecured personal loans.Eligibility Criteria
Generally, almost anyone who holds a fixed deposit is eligible to avail of a loan on FD. However, there are specific criteria that you should be aware of:1. Minimum Deposit Requirement: Financial institutions typically specify a minimum amount for the fixed deposit, often in the range of INR 10,000 to INR 20,000.
2. Tenure of FD: Banks may require the FD to have a minimum tenure before you can avail a loan against it, commonly six months or more.
3. Account Holder: Loans are usually provided only to the primary account holder of the FD.
Features and Benefits
- Quick Disbursal: Owing to minimal paperwork, loans against FDs are disbursed quickly, sometimes within just a few hours.- Lower Interest Rates: The interest rate on a loan against FD is typically 1-2% higher than the interest rate on the FD itself, considerably lower than unsecured loan rates.
- Continual Interest on FD: The Fixed Deposit continues to earn interest even when it is pledged as security.
- Flexible Terms: Most banks offer flexible repayment options and tenure for the loan, making it easier to manage financially.
How to Apply for a Loan on FD
Here are the steps to follow to obtain a loan against a fixed deposit:1. Document Preparation
Before you approach a bank, make sure you have the necessary documents. Generally, the required documentation includes:- Fixed Deposit receipt or certificate
- Proof of identity (e.g., Aadhar Card, Passport, Voter ID)
- Proof of address (e.g., Utility bill, Passport)
- Application form provided by the bank
2. Visiting the Bank Branch
You can apply for the loan by visiting the nearest branch of the bank where you hold the FD or through their online platforms if available. Approaching the branch directly might expedite the process.3. Filling the Application Form
Fill out the loan application form providing details of the FD and additional required information. Ensure all the information is accurate to avoid any delays.4. Authorization
You’re required to authorize the bank to hold your FD as collateral. This may involve submitting an agreement form where you agree to the terms and conditions for using the FD as security.5. Approval and Disbursal
Once the application is submitted, the bank will process the request, often a relatively quick procedure. Upon approval, the loan amount is generally disbursed directly into your bank account.Repayment Terms
Repayment terms for loans against fixed deposits are generally flexible. You can choose between regular EMIs or paying the interest during the loan tenure and principal at the end. Failure to repay, however, will result in the bank liquidating the FD to recover the dues.Important Considerations
While obtaining a loan against a fixed deposit is relatively simple and beneficial, there are a few considerations to keep in mind:- Loan Amount: Typically, banks lend up to 75-90% of the FD amount, depending on their policies.
- Pre-mature Withdrawal: If you opt for premature withdrawal of the FD while the loan is active, additional penalties and charges might apply.
- Processing Fees: Some banks might charge processing fees, although these are usually nominal.
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