Loan against Fixed Deposit
Loan against fixed deposit is the best option than breaking your Fixed deposit before its maturity.
Liquidity management remains at the top of any financial planning. Investment is a method by which an individual saves money and let it increase so that future financial demands can be fulfilled. But future is unforeseen and demand of money can arise at any time. Thus investment strategy places a very important role in providing fund at such events. And, fixed deposits come as a rescue to it. Loan can be granted on the fixed deposit to raise short term money instead of breaking the fixed deposit.
Banks provide loan against a Fixed Deposit as an overdraft up to the 90% fund value of the deposit. Breaking up of a fixed deposit is not beneficial for the bank too. Thus banks provide lower interest and risk free loan to the fixed deposit holders. Benefits of loan against FD are:
- Liquidity management: loan against FD helps in meeting short notice credit demand while keeping your savings intact. It also saves from selling up of assets into discount to get the money.
- Save on interest rates: because loan is taken against a deposit, interest rates are very low. Some bank even charge only 1% extra then what one get on fixed deposit.
- 90% of fund value: the granted loan even can be of 90% of the fund value of a fixed deposit.
- Repayment facility: Loan can be replayed as lump sum or in instalments. If party defaults on providing the money back, the net balance of a fixed deposit will be paid on the maturity of the FD.
- Other facilities: the loan amount can be accessed through ATMs or used via cheques.
Applying for the loan
So you’ve acted smartly. You want to take a loan on your fixed deposit and do not want to break it. Good! The process itself is very simple. Just fill up the form for loan, attach required documents and fixed deposit receipt. After reviewing the documents, bank approves loan payment.
Apart from above mentioned pointes, a loan issuer must have to take care of following points.
The term of the loan is restricted to the maximum of the term of the fixed deposits.
The loans which are free from lien or restrain are only issued. Thus, if fixed deposit is on a minor, the loan may not be issued.
If the fixed deposit is opened jointly, the loan document must incorporate the sign of all the holders. The responsibility of its redemption rests with all the holders equally.
The interest payments on FD are payable to the account holder. The repayment of the loan should be done separately.
Personal loans against a fixed deposit can really be a very good facility at the time of credit crunch. So, don’t worry about the future if you are a Fixed deposit holder.
Recommended Read :
- What is Fixed Deposit?
- Why Banks Take Fixed Deposit?
- Fixed Deposit Vs Mutual Fund
- Fixed Deposit Vs Recurring Deposit
- Bonds Vs Fixed Deposits
- Fixed Deposit Vs Non-Convertible Debenture
- Best Alternatives to Fixed Deposits
- How to Compare and Select Fixed Deposit Plan?
- How to Open Fixed Deposits for Nri?
- Fixed Deposit for Retired Citizens
- Callable vs Non Callable Fixed Deposits
- Loan Against Fixed Deposits
- How to get Loan Against Fixed Deposit?
- What is Tax Deducted At Source?
- How to Avoid Tds On Fixed Deposit?
- How to Save Tax On Fixed Deposit Interest?
- What is Tax Saving Fixed Deposit?
- Fixed Deposit and Income Tax Payment
- Main Disadvantages of a Fixed Deposits
- Premature Or Partial Withdrawal of Fixed Deposits
- What is Flexi Fixed Deposit?
- What is a Corporate Fixed Deposit?
- What is Term Deposit?
- Benefits of Online Application of Fixed Deposits
- Who Sets The Fixed Deposit Rate in India?
- Importance of Tenure in Fixed Deposit
A number of banks in India offer loan against fixed deposits. This option can help you with your urgent money requirements, without breaking your FDs prematurely. Loan against fixed deposit is a good option in case you are looking forward to get a loan at a better rate as compared to personal loan, where you have to pay 14-30% p.a. interest.
People don’t want to make Fixed Deposits with banks because they think they are not liquid in nature. But they are unaware about the loans banks provide on these deposits up to 90% of the fund value. These loans enjoy a number of benefits such as lower interest, risk free loan, repayment in installment etc. For this, FD holder has to fill a form attached with required documents.
Fixed deposits are made keeping in mind a forseen event in the near future. But an unexpecteded turn might take place and instead of withdrawing it before maturing it is the same as eating a raw fruit. Indeed it is the best possible option to take a loan against it. Undoubtedly the article clearly explains the various aspects to be looked into before making the plunge.