Loan Against FD

A loan against FD is a credit facility banks offer as a loan against your existing fixed deposit account. Rather than withdrawing your fixed deposit prematurely and paying penalty fees, you can avail of this secured loan at an affordable interest rate. While some banks offer upto 90% of the FD amount as a loan, the amount varies from bank to bank.

Note: Banks do not offer loans against FD benefits to the investors of 5-year tax-saving FDs

• The loan is offered on the amount deposited, not the amount you will receive on maturity.
• The loan against the FD interest rate is usually 1% or 2% above the fixed deposit interest rate. For instance, if your fixed deposit offers an interest rate of 6%, the loan interest rate would be 7% or 8%, as determined by the bank. However, this rate is still typically lower than personal loan interest rates. 
• The tenure of a loan against fixed deposit is either the same or less than that of the fixed deposit. For example, if the tenure of your fixed deposit is 6 years, the loan can be either less than or equal to 6 years but can be at most that.
• Since the loan is offered against an existing deposit, your credit score isn’t given much importance. So, even with a low or no credit score, you can get this loan.
• Prepayment is also allowed, wherein you can pay off a loan early to reduce the interest burden. Further, many banks do not charge any fees on loan foreclosure. Loan foreclosure is the full repayment of your remaining loan amount in one single payment instead of paying multiple EMIs.
• The maximum amount for a personal loan is determined by factors such as credit score, income, repayment schedule, etc. But when you avail a loan against an FD, the maximum loan amount is determined by the amount of money in your FD account. This means you will be eligible for a larger loan with a higher FD amount.

You can avail of a loan against FD in the following ways:

• Offline Channel

You can visit the nearest branch of your bank, where you maintain a fixed deposit account. You can complete the loan application form and submit it with your fixed deposit receipt. As the bank already has your KYC formalities updated from when you opened your FD, the documentation required for a loan against your FD will be minimal.

Once the branch verifies your application and documents, they will sanction the loan.

• Online Channel

You can also get the loan through the bank’s website. Log into your net banking account, choose the deposit scheme against which you want the loan and apply. Fill out an online application form and submit your documents. The bank will issue the loan once your application and documents are verified.

• Mobile App Channel

Many banks have launched mobile applications that help you track your accounts and investments. You can download your bank’s mobile app and apply for a loan from the app itself. Just fill out a simple application form and upload your documents. The bank would verify your details and sanction the loan on a fixed deposit.

Usually, the eligibility parameters depend on the bank with which you apply for the loan. However, some of the common eligibility parameters are as follows:

• Credit Score Not an Obstacle: Forget credit hassles! You can access cash against your fixed deposit (FD) regardless of your credit score.
• Unlock Up to 95% of Your FD: Banks typically offer generous loans, providing up to 90-95% of your FD amount.
• Enjoy Lower Interest Rates: Breathe easy with competitive rates! FD loans often boast interest rates lower than personal loans or credit cards, typically just 0.5%-2% higher than your FD's interest rate.
• NRIs can also avail: Even if you're an NRI, you can leverage your NRE/NRO FDs for loan access.
• Hassle-Free Process: Say goodbye to mountains of paperwork! Most banks offer smooth loan applications with minimal documentation, and some even have online options through net banking.
• Flexible Repayment: Choose how you repay, either fixed instalments or a lump sum. Remember, the loan must be repaid within your existing FD's tenure (it piggybacks on that timeframe).

• Collateral Caution: Your FD acts as collateral for the loan. Failure to repay could result in the bank seizing your FD and forfeiting your accrued interest.
• Limited Tenure: This loan's duration is tied to your FD's maturity date. If your FD matures in nine months, that's your loan's maximum term.
• Reconsider if you are unsure of repayment: If you need more certainty about your ability to repay the loan on time, explore other options. Defaulting can damage your credit score and cost more than premature withdrawal penalties.

If you face an emergency, like a medical crisis, a loss of job, or any other financial obligation, you can avail of a loan against FD and get the funds to fulfil your needs. The loan has affordable interest rates and allows the overdraft facility wherein you pay interest only on the borrowed amount.
However, getting a loan against a fixed deposit depends on your fixed deposit. So, if your deposit is low, you might not get funds as needed. Other than this, the loan offers easy financing for your needs.