Loan Against FD: Eligibility, Interest Rates, Benefits & Application Guide

Introduction 

Fixed deposits let you invest your money for a fixed period and offer guaranteed returns at maturity. They are known for being low-risk and dependable, which makes them a popular choice if you prefer conservative assets. But there is one more feature of fixed deposits that many people overlook - they can also help you access funds in times of need. 

Did you know you can take a loan against your fixed deposit? If not, read on to find out how this works and why it might be a smart option when you need quick cash.  

What is a loan against Fixed Deposit (FD)? 

A loan against an FD is a loan you can take against your FD. Normally, FDs come with a lock-in period, and withdrawing money before maturity results in paying a penalty. But with this option, you can access a percentage of your FD’s value as a loan without breaking the deposit or facing any penalty. 

It is considered a secured loan because your FD acts as collateral. The interest rate on this type of loan is usually lower than that of unsecured loans and is determined by your FD provider’s terms and conditions and the value of your FD. For example, some banks may offer a loan up to 90% of your FD’s value. 

Eligibility criteria for loan against FD

You must meet the following criteria to apply for a loan against your fixed deposit:

• You must be an Indian national
• You must be at least 18 years old 
• You should have an active fixed deposit that has not yet matured
• Some banks may require you to have held the FD for a minimum period (e.g., 3 months) before becoming eligible for a loan
• The loan can be availed by:
  • Individuals, including salaried professionals and self-employed persons
  • Businessmen
  • Family trusts 
  • Associations, societies, and clubs  
  • Partnership firms, group companies, and sole proprietorships

List of banks offering loans against FD

Several banks in India offer the option to take a loan against your FD. Some of them include:

• Axis Bank
• Bank of Baroda
• State Bank of India
• Karur Vysya Bank
• Federal Bank
• UCO Bank
• Bandhan Bank
• Ujjivan Small Finance Bank
• Punjab National Bank

Key benefits of availing a loan against FD

Here are some benefits of using a loan against FD:

• Easy access to funds: Instead of applying to a separate lender and going through a lengthy application and screening process, you can simply approach your FD provider. The process involves minimal documentation and is usually much faster. 
• Lower interest rates: The loan you take is secured by your FD, which is why the interest rates are typically lower than those for other loans or credit cards. This helps you save a lot of money in the long run.
• Higher chances of approval: Banks generally do not verify your credit history or income and employment status for this type of loan. Because your FD acts as collateral, the lender already has a fallback in case of default. This makes approval more likely, even if your credit profile is not perfect.
• No need to break your FD: You do not have to withdraw or prematurely close your FD. Your investment continues to earn interest while the loan takes care of your immediate financial needs. This ensures that you do not neglect your long-term goals.  

How do you apply for a loan against FD?  

You can apply for a loan against your FD either online or offline, depending on what is more convenient for you. Here is how each method works:

Online process:

• Visit the official website of your FD provider
• Navigate to the FD section
• Look for the option labelled loan against FD and click on it
• Enter details such as your name, age, the loan amount you wish to borrow, and other FD information
• Review the terms and conditions carefully
• Submit your application
• Once approved, the bank will notify you and credit the loan amount to your account

Offline process:  

• Visit the nearest branch of your bank
• Ask a bank representative for an application for a loan against an FD
• Fill in the form with the required details, such as your name, age, loan amount, and other relevant FD information
• Understand the terms and conditions carefully
• Submit the completed form along with any necessary documents
• After approval, the bank will inform you and disburse the loan amount to your account

Things to keep in mind before availing a loan against FD

Here are some things you must keep in mind before availing of a loan against FD:

• Loan tenure is linked to FD maturity: The loan must be repaid before your deposit matures. You cannot extend it beyond the FD’s term. That is why it is important to assess your repayment capacity beforehand and ensure that you will be able to repay the loan comfortably within the given timeline.  
• Understand the repayment terms: Repayment terms can vary from one bank to another. Make sure to go through the terms and conditions carefully so you are clear on repayment timelines and penalties for delays.
• Loan amount is capped: The maximum loan amount you can avail depends on the bank's policy. It usually ranges from 75% to 90% of your FD’s value. However, the exact limit is set by the FD provider.

Conclusion 

A loan against your FD can be a convenient way to meet immediate financial needs without breaking your investment. It offers better flexibility and quicker access to funds compared to applying for a fresh loan from a new lender. However, the loan amount and tenure are limited by the value and maturity of your FD. If your financial need exceeds these limits, you may have to consider other options. But if it fits within your FD’s scope, this option can help you manage short-term expenses while keeping your savings intact.