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Tata Capital > Blog > Loan on Securities > Loan Against National Savings Certificates (NSC)

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Loan Against National Savings Certificates (NSC)

Loan Against National Savings Certificates (NSC)

Financial emergencies may strike at any given time. Whether it is an urgent medical attention, a major personal expense or maybe even a substantial business decision. When met with such emergencies, individuals are most likely to exhaust their savings or opt for an unsecured loan with high interest rates.

But what if we tell you that there is an underrated method of financing that is easier to sanction and can help you save on interest payments? A loan against National Savings Certificates (NSC) allows you to meet your financial needs without liquidating your savings or settling for high interest rates.

Read on to learn more about this financing tool and understand the numerous ways you can benefit from a loan against NSC.

What is National Savings Certificate (NSC) and How Does It Work?

National Savings Certificates are government-backed savings instruments that offer a safe investment option. These certificates are usually used to diversify the investor’s portfolio due to their guaranteed return and tax-saving features.

You can purchase an NSC certificate from your nearby Post office which carries a maturity period of 5 years. The best part– there is no upper limit to the number of certificates you can hold. So, you can buy as many NSCs as you want.

The interest rates offered by NSCs are higher than a regular savings account. However, the interest rates are revised by the Indian government every quarter. NSCs can also enjoy tax benefits, as Section 80C of the Income Tax Act allows owners of NSC certificates to avail tax deductions up to Rs. 1.5 Lakhs.

Owing to their guaranteed returns and government backing, these securities can be seamlessly utilised as collateral for loans.

Advantages & Features of Loan Against NSC Certificate

By securing a loan against NSC, you can enjoy the following benefits:

Multi-purpose Usage

One of the best features of taking a loan against NSC is its flexibility. Unlike other forms of loan, a loan on NSC certificate has no restriction regarding the end use of funds. Hence, you can use the loan amount to fulfil personal, business, medical, educational, or even household requirements.

Higher Loan Amount

A loan on NSC certificate empowers you to get access to a substantial amount of funds. In most cases, financial institutions can offer a loan amount as high as 90% of the NSC value. However, the tenure of the certificate plays a key role in the sanctioned loan amount. For instance, a certificate which has been issued for more than 3 years can attract a higher value as compared to a newly issued NSC certificate.

Lower Interest Rates

Loans against NSC interest rates are renowned for being more competitive than other loan forms. While the final interest rate depends on your overall profile and credit history, a loan against security interest rate can be significantly lower than a personal loan. If you have similar requirements, experts suggest opting for a loan against NSC instead.

Loan Tenure

The tenure of a loan against NSC usually lasts as long as the validity of the certificates. Let us say that your NSC will mature after 5 years, then the tenure of your loan will also be 5 years. However, you also have the provision to repay the loan amount before the tenure. Some institutions even allow repayment EMI. 

All the below mentioned details may change from time to time –

Also,read –How Loan Against Shares Work?

Loan Against NSC in India: Interest Rates, Maximum Limit & Margin

Loans against National Savings Certificates (NSCs) generally have lower interest rates than unsecured loans. This is because NSCs serve as collateral, reducing the lender’s risk and improving your eligibility. When it comes to the loan amount, many lenders will offer a principal amount based on the NSC’s value. 

Many financial institutions allow borrowers to avail of around 80% to 90% of the NSC’s face value as a loan. For example, if you hold NSCs worth Rs.2,00,000, you may be eligible to borrow approximately Rs.1,60,000 to Rs.1,80,000. However, interest rates and loan amounts will ultimately vary based on the lender. 

How to Avail Loan Against NSC from Post Office or Bank

If you wish to take a loan against NSC certificates, you need to follow these simple steps:

1. Collect the NC41 form from your nearest post office and fill it up with your required details

2. Submit the form along with the documents required for a loan against security

3. Once approved by the postmaster, pay the required fees at the post office

4. The post office shall release the pledge, and the amount will get transferred to your desired financial institution

5. Once the institution receives the pledged certificate, your loan amount will be sanctioned.

Eligibility Criteria for Loan Against NSC 

Securing a loan on NSC is a simplified process as long as you fulfil these basic eligibility criteria:

1. Nationality: Only individuals with Indian citizenship can avail of a loan against NSC.

2. Age: Since NSC can be bought on behalf of a minor, financial institutions have dictated a minimum age eligibility of 18 years when applying for a loan against NSC. On the other end of the spectrum, the maximum age to apply for a loan on NSC is 75 years.

3. Ownership: A loan against NSC can only be sanctioned for the owner of the certificates. So, if you wish to take a loan on your NSC, ensure that your name is mentioned on the certificates.

Documents Required for Loan Against NSC Certificate

Before you apply for a loan against NSC, make sure that you have these documents handy:

1. ID Proof: Any government-approved identity card, like Aadhaar card, Driver’s license, Passport, or Voter ID card.

2. Income Proof: The institution sanctioning your loan might ask for income proof to gauge your repayment ability. Form 16, Income Tax returns, and salary certificates can be accepted as valid proof of income.

3. Original NSC: The original copy of the National Saving Certificate needs to be submitted to the lending institution.

4. Photographs: Valid passport-size photographs with a clear focus need to be attached to the form.

Also,read – Pros & Cons Of Taking Loan Against Shares

Common Reasons for Loan Against NSC Rejection 

There may be many reasons why a loan against an NSC from the post office may get rejected. Some common reasons include:

1. Insufficient NSC value: If the NSC’s current value is not high enough, lenders will reject the application. 

2. Insufficient credit score: A low CIBIL or poor credit history will reduce approval chances, even with NSC as collateral.

3. Incomplete documentation: Incorrect documents, missing documentation like ID proof, NSC certificates, income slips and ITRs will lead to loan application rejection. 

4. Loan amount doesn’t match the NSC: Lenders usually offer 80 to 90% of the NSC value as the loan amount. Loan applications requesting more than this limit may be declined.

Also,read – Loan Against Bonds: Know Its Meaning and Definition

To Sum Up

Instead of exhausting your savings or opting for loans with higher interest rates, a loan on NSC certificates is a cost-effective way to finance your needs. With lucrative benefits like lower interest rates, flexible usage, and significant loan amounts, taking a loan against NSC is an underrated yet effective financial solution.

Choose a loan against securities with Tata Capital and enjoy a hassle-free experience. Renowned for its minimal documentation, streamlined application process, competitive loan interest rates, and swift disbursement, Tata Capital is the ideal option for your financial needs.

Visit Tata Capital’s website or download the app to apply for a loan today!

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FAQs

Can I get a loan against NSC at any post office or only with major banks?

 

Many public- and private-sector banks and NBFCs offer loans against NSCs. Since they are government-backed, lenders see them as secure, low-risk assets.

What is the typical loan amount I can get against NSC certificates in India?

 

NSC loan value varies by lender and borrower profile. Usually, lenders offer between 80 and 90% of your NSC’s value as the loan amount.

Is the loan against NSC from post office taxable?

 

Interest income from your NSC does get added to your taxable income. However, an NSC loan may not be eligible for taxation. It is important to check taxation policies with your lender.

What happens to my NSC certificate after taking a loan against it?

 

When you take a loan against your NSC, the lender holds the NSC certificate as collateral. It cannot be cashed until the loan has been repaid.

Can I part-prepay or foreclose my loan against NSC certificate?

 

Yes, many lenders allow partial prepayment or full foreclosure on loans. However, this is subject to their terms and may come with additional fees or penalties.

How soon can I get loan sanction after pledging National Saving Certificates?

 

The speed of the loan sanctioned against an NSC will vary depending on the lender’s processing procedures and policies. Usually, it is done relatively quickly, within a few working days.

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