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Things to Know about Loan Against Fixed Deposit

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Manish Kothari
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Loan Against FD Interest Rate 2023

As per a SEBI survey, ‘More than 95 per cent Indian households prefer to park their money in bank deposits, while less than 10 percent opt for investing in mutual funds or stocks’.

It is no surprise that fixed deposits are the preferred investment vehicle for many Indian families. Due to the lack of financial literacy, Indians as a habit have been inclined to invest in safer assets. Hence, it is no surprise that the most popular asset classes following FD are insurance, gold, post-office savings, and real estate.

Loan Against Fixed Deposit Interest Rates

Fixed deposits are also preferred by investors because it's one of the easiest products to understand. Another added advantage is the possibility of getting a loan against fixed deposit. In order to avail this loan, one does not need a credit score nor is there an income eligibility criterion.

Fixed Deposit as Collateral

Fixed deposits can be used for taking loans with banks or NBFCs. Almost all the banks accept the FD as collateral for the Loan and these loans are considered the secured loans. Generally, the banks offer loans of up to 90%-95% of the amount of the fixed deposit.

Overdraft Facility on FD

Overdraft facility means the FD holder can do the payment from the bank with which he/she has the fixed deposit even if they do not have the balance in their account. The bank charges the interest for providing an overdraft facility. But the interest is charged only on the amount used as an overdraft, not on the total limit for the overdraft.

Process

In order to apply for a loan against a fixed deposit one needs to get the form from their respective bank branch. One may submit this form with the required documents in order to apply for the loan.

Who can apply for the loan against FD ?

  • Applicant should be at least 21 years old
  • Applicant must be an Indian resident
  • Must have an active fixed deposit with the lending bank

Documents Required

Generally, the following documents are required along with the bank application form. However, one may check with their bank.

Application form

  1. Fixed Deposit Receipt
  2. Passport size photographs
  3. Valid photo identity proof
  4. Address proof

Interest Rate on loan against fixed deposit

The bank lends to an applicant against the FD that he holds with the bank. Therefore, the FD works as a collateral for the lending. So, logically the interest on such a loan should be lower than an unsecured loan. This rate is generally 1 or 2 percentage points more than the rate of the deposit.

For instance, in the case of loan against fixed deposit from SBI, the interest on the loan is 1% above the term deposit rate. Whereas, for HDFC and Axis Bank it is 2% above the deposit rates. This is very attractive when compared to personal loan rates, which are in the range of 10-12%.

What is also worth noting is that with some banks one can avail up to 90% of the fixed deposit value in loan.

Also Read: Corporate FD Interest Rates 

Pre-payment

One is permitted to prepay his loan against fixed deposit at any point during the period of the loan. Unlike other form of loan where the bank may charge a pre-payment penalty for early closure of loans, loans against FD do not levy any such charges. One may close their loan at any point in time without incurring any penalties.

Tenure

The tenure of the loan is dependent on the remaining time for the fixed deposit to mature. The tenure of the loan cannot exceed the maturity date of the FD since the FD acts as a collateral for the lending bank.

Also Read : HDFC Bank FD Interest Rates

Option of Breaking the Fixed Deposit

When one has an active FD with a bank and is need of funds, he has 2 options. The first option is to break the FD and use the funds. The second option is to avail a loan against  the Fixed Deposit. As we have already discussed, a loan against fd will entail a cost which is higher than the returns you receive from the FD. So, wouldn’t it be better for you to break the FD and save the additional interest cost? In order to answer this question, let’s understand the differences between both the options.

Convenience – In order to receive a loan against an existing FD, one would need to go through an application process and submit necessary documents etc. The loan would be disbursed only on verification and approval of the documents. On the other hand, when one breaks an FD, the funds are almost instantly disbursed to the client's account.

Maximum Amount – The amount of loan that the banks usually allow against fixed deposits is restricted to 85-90%. However, in the case of breaking an FD, the entire amount is credited to the bank account.

Costs – There are no costs involved when taking a loan against fixed deposit. Pre-maturing a Fixed Deposit might however entail a small penalty.

Interest Rate – The loan against fd comes at a higher rate compared to the rate of return on the FD.

Loan Against FD vs Breaking of FD
 Loan Against FDBreaking FD
Convenience×
Amount×
Cost×
Interest×

As one can tell from the table above, most of the differences are in favor of breaking of FD. However, there are certain human biases that we must take into account prior to coming to a decision. It is always very difficult to put money together and make a lumpsum investment like an FD. Therefore, to break the FD may not be the best option. In case one takes a loan against fixed deposit, he needs to repay with EMIs which may be more convenient.

Also, one must take into consideration the need for the loan and the estimated tenure of the loan. If the money is needed for almost the same tenure as the maturity of the FD, one may consider breaking the FD. However, if it is for a short period, then taking a loan may be a smarter option.

Also Read : SBI Bank FD Interest Rates 2023

Features of Loan against Fixed Deposit

The many features of loans against fixed deposits are explained in detail below:  

Low-interest rates: Loans against fixed deposits typically have a lower interest rate than other types of loans. Thus, these allow you to save money on the interest payable. These interest rates are generally one to two percent higher than the interest rate applicable on the fixed deposit. However, since these vary from organization to organization, it is advised to check with the entity holding your fixed deposit regarding the applicable interest rate.  

Flexible loan repayment period: Since loans against FDs are backed by collateral, one can enjoy flexible loan repayment options. However, since this varies with the bank/NBFC, it is better to inquire about it before taking the loan.  

Available for domestic and NRI FDs: Most banks and NBFCs allow their customers to take loans against domestic as well as NRI fixed deposits.  

Zero processing fee & no need to break your deposit: Another advantage of loans against fixed deposits is that unlike other loans, these usually come with zero processing fee. Therefore, depositors can save money from the get-go. Moreover, FDs are often the culmination of years or months of savings. Thus, breaking one is usually the last resort for depositors.  

Benefits of Loan against Fixed Deposit  

Now let us take a look at some of the most significant benefits of taking a loan against your fixed deposit:  

Minimal Documentation: Unlike most other types of debts, loans against FDs invite very limited paperwork for depositors.  

No need for a good credit score: While your other loan requests may face rejection due to a bad credit score, one can easily take a loan against a fixed deposit despite having a bad score with the credit rating agencies.  

Seamless application process: Now since the collateral is already with the bank or NBFC issuing the loan, the application process is fairly simple and typically takes minimal time.  

No prepayment charges: The list of loans against fixed deposit advantages also includes ‘no prepayment charges.’ This means that you can choose to repay your loan taken against an FD at any point in time without worrying about any additional charges being levied on you by the bank or non-banking finance company.

Loan against Fixed Deposit Disadvantages 

If you are taking a loan against fixed deposit is not always the best option, especially when you are unsure about your ability to repay it. Also, defaulting on the FD loan can harm your credit score. In some example, paying the penalty for premature withdrawal would be better than not being able to repay the loan amount on time.

Banks Fixed Deposit Interest Rates (w.e.f January 2023)

Bank NameCumulative Deposit
SBI Bank Fixed Deposit Rates3.5% to 7.25%
Axis Bank Fixed Deposit Rates3.5% to 8.01%
ICICI Bank Fixed Deposit Rates3.5% to 7.50%
HDFC Bank Fixed Deposit Rates3.5% to 7.75%
IndusInd Bank Fixed Deposit Rates4% to 7.85%
Federal Bank Fixed Deposit Rates3.5% to 7.75%
Canara Bank Fixed Deposit Rates3.25% to 7.65%
Union Bank of India Fixed Deposit Rates3.5% to 7.8%

Top Bank Fixed Deposit Saving Schemes for Individuals (w.e.f January 2023)

Bank Name1 Year3 Years5 Years
Axis Bank6.75%7.00%7.00%
HDFC Bank6.50%7.00%7.00%
Yes Bank7.00%7.00%7.00%
Canara Bank6.75%6.50%6.50%
Punjab National Bank6.75%6.75%6.50%
KVB Bank FD6.50%7.00%6.25%
Punjab and Sind Bank6.25%6.25%6.25%

Top Bank Fixed Deposit Saving Schemes for Senior Citizens (w.e.f January 2023)

Bank  Name1 Year3 Years5 Years
Axis Bank7.50%7.75%7.75%
HDFC Bank7.00%7.50%7.50%
Yes Bank7.50%7.50%7.50%
Canara Bank7.25%7.00%7.00%
Punjab National Bank7.25%7.25%7.00%
KVB Bank FD6.90%7.40%6.65%
Punjab and Sind Bank6.75%6.75%6.75%

Top Company (Corporate) Fixed Deposit Saving Schemes (w.e.f January 2023)

Company NameCRISIL RatingICRA RatingMax. FD Rates (P. A.)
Shriram Transport Finance Ltd Fixed DepositAAAAA+9.10%
Mahindra Finance Ltd Fixed DepositAAA-7.50%
PNB Housing Finance Ltd Fixed DepositAA-7.55%
LIC Housing Finance Ltd Fixed DepositAAA-7.50%
HDFC LTD Fixed DepositAAA-7.35%
Sundaram Finance Company Fixed DepositAAA-7.50%
Muthoot Capital Fixed DepositA+-7.25%

Top Company (Corporate) Fixed Deposit Saving Schemes for Senior Citizens (w.e.f January 2023)

Company NameCRISIL RatingICRA RatingMax. FD Rates (P. A.)
Shriram Finance FD RatesAAAAA+9.30%
Mahindra Finance Ltd Fixed DepositAAA-7.75%
PNB Housing Finance Ltd Fixed DepositAA-7.80%
LIC Housing Finance Ltd Fixed DepositAAA-7.75%
HDFC LTD Fixed DepositAAA-7.60%
Sundaram Finance Company Fixed DepositAAA-8%
Muthoot Capital Fixed DepositA+-7.50%

Frequently Asked Questions - Loan against Fixed Deposit Interest Rates

Q: Can I get loan against my fixed deposit ?

A: Loan against Fixed Deposit is a type of secured loan where customers can assure their fixed deposit as security and get a loan in return. 

Q. What is a loan against Fixed Deposit?

A. Most of the banks give the facility to avail the loan against the fixed deposit made by the depositor. The FD holders can apply for a secured loan against their FD. 

Q. How much loan can be availed against their FD ?

A. Most of the banks give the loan against the fixed deposit made by the depositor of the amount up to 90% to 95% of the fixed deposit value.

Q. Is the interest applicable on loans against Fixed Deposit ?

A. Yes, banks charge the interest for offering loans. The loan is considered to be a secured loan because of being backed by the deposit. The interest is charged as per the rates applicable to a secured loan.

Q. Can Fixed Deposit be used as collateral ?

A. Fixed deposits can be used as collateral to take loans from banks. Most of the banks and NBFCs accept the fixed deposit as collateral and gives the loans against the fixed deposit.

Q. Who can apply for the loan against FD ?

A. Any person who has a fixed deposit account can apply for the loan against their FD.  

Q. What is the tenure for the loan against FD ?

A. The tenure of the loan can be decided by the person who is taking the loan but the tenure cannot exceed the maturity of the fixed deposit.

Q. Can we make a premature withdrawal from the fixed deposit if we have taken a loan against the fixed deposit ?

A. If an individual has availed a loan against FD, then he/she cannot make premature withdrawal from the fixed deposit. But to do so, an investor has to first repay the full loan amount, and then they can premature the fixed deposit.

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