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.
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What is Loan against FD?
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.
Who can Apply for 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
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Benefits of Loan against FD
Some of the reasons of why one should shift to loan against FD are mentioned below:
- Lower interest rates compared to other types of loans like 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 instalment (not later than FD tenure)
FD as Collateral/Security
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.
Loan Limit in Major Banks
|State Bank of India||Up to 90%|
|ICICI Bank||Up to 90%|
|Bank of Baroda||Up to 95%|
|Axis Bank||Up to 85%|
|HDFC Bank||Minimum Rs. 25,000|
|Citibank||Up to 90%|
|Kotak Mahindra Bank||Up to 85%|
|Yes Bank||Up to 90%|
|Punjab National Bank||Up to 90%|
|Canara Bank||Up to 90%|
Note: Banks do not offer loan against FD benefits to the investors of 5-year tax-saving FDs.
What is an Overdraft Facility?
Loan against FD is given by banks as an overdraft facility to customers.
Overdraft or OD limit backed by fixed deposit is lower than the deposit amount whereas the interest charged is higher than the applicable FD card rate.
Also, it should be noted that the interest is charged only on the amount of overdraft taken and not on the entire limit. For example, Ms X has an FD of Rs. 1 lakh and her OD limit is 90%. She takes a loan of Rs. 50,000 which is only 50% of the deposit amount. So now, the interest shall be charged only on 50% of the deposit amount and not on the limit that is 90% of the deposit amount.
There is no fixed duration for an overdraft. Interest is paid as long as the customer holds the money.
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Frequently Asked Questions
Q. What is the interest rate charged for a loan against FD?
Banks and NBFCs usually charge 0.5% to 2% rate of interest above the applicable FD interest rates.
Q. Can senior citizens apply for a loan against FD?
Yes. Anyone who owns an FD account (not in the name of a minor) can avail this facility.
Q. What are the charges to be paid against loan against fixed deposit?
No charges are to be paid including the processing fee for availing loan against FD. Interest is charged which is usually up to 2-3% above the applicable card rate.
Q. Can one avail loan against FD using internet banking?
It varies from bank to bank.
Q. Which documents are required for application of loan against FD?
Application form, FD receipt, ESC mandate & cancelled cheque for non-cumulative FDs, etc. may be required when applying for a loan against FD. Please note that this is only an indicative list.
Q. How much loan can one get against their FD?
Depending upon the respective bank, the loan amount may go up to 95% of the deposit amount.
Q. What is the tenure within which loan taken against FD should be repaid?
Loan against FD must be repaid before the maturity of the fixed deposit. Under no circumstances can it exceed the tenure of the FD against which loan is taken.
Q. What is FD lien
Lien is like a charge created by banks. Under this, banks get automatic claim over the deposit against which loan has been taken. It should be noted that not all banks practice this feature.