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Tata Capital > Blog > Personal Use Loan > Loan against fixed deposit: Interest rates, benefits & how it works

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Loan against fixed deposit: Interest rates, benefits & how it works

Loan against fixed deposit: Interest rates, benefits & how it works

A loan against fixed deposit is a secured loan that uses your fixed deposit as collateral. You are typically allowed to borrow between 75% and 95% of your investment value, depending on the lender’s policy. The loan can be taken for different purposes and usually comes with lower interest rates compared to unsecured personal loans.

A loan against fixed deposit is a loan you can take by pledging your fixed deposit with the lender while allowing your investment to continue earning interest throughout the tenure.

If you have ever wondered, “Can I take a loan against my fixed deposit?”, the answer is yes. A loan against fixed deposit allows you to access funds in times of need without breaking your investment.

This guide explains what a loan against a fixed deposit is, how it works, the loan against fixed deposit interest rate, the loan amount you can get, its benefits and disadvantages, and the different types of loans you can avail of against your fixed deposit.

What is a loan against fixed deposit and how does it work?

A loan against fixed deposit is a secured loan where your fixed deposit acts as collateral with the lender. Instead of breaking your fixed deposit, you pledge it to borrow some percentage of the deposit value. The lender places a lien on your fixed deposit until you repay the outstanding loan amount, while your investment continues to earn interest as per its original terms.

You can repay the loan through Equated Monthly Installments (EMIs) or by using the overdraft facility, if available. Once done, the lien is lifted, and you regain full access to your fixed deposit.

Learn More – Loan Against Securities

What is the loan against fixed deposit interest rate?

The loan against fixed deposit interest rate is generally lower than the interest rate charged by unsecured personal loans because your fixed deposit serves as collateral. Most lenders typically charge an interest rate that is 1% to 2% higher than your fixed deposit interest rate, although the exact rate varies across lenders and the type of fixed deposit. 

For instance, if your fixed deposit earns 5% interest per annum, you can typically obtain a loan at 6% to 7% per annum.

Check – Loan Against Securities Interest Rates & Charges

Loan amount against fixed deposit: How much can you get?

If you are wondering, “Can I take a loan against my fixed deposit,and how much can I get? “, the loan amount typically depends on the value of your fixed deposit and the lender’s policy. Most banks and financial institutions offer 75% to 90% of the fixed deposit value as the loan amount. Some lenders may also sanction up to 95%, depending on their Loan-to-Value (LTV) ratio.

These figures are indicative and vary across lenders. However, the loan amount cannot exceed the value of your fixed deposit in any case. 

What are the benefits of a loan against fixed deposit?

A loan against fixed deposit offers several benefits, such as:

  • Lower interest rates compared to unsecured loans.
  • No need to break your investment to access funds.
  • Continued interest earnings on your fixed deposit until it matures.   
  • Quick approval and disbursal with minimal documentation and relaxed eligibility criteria.
  • Flexible end use, as the funds can be used for almost any purpose, unlike a car or home loan.

Can you take different types of loans against a fixed deposit?

Yes. Fixed deposits can help you access different types of loans. However, not every fixed deposit qualifies as collateral. Some common loan options and exclusions include:

  • Personal loan against fixed deposit
  • Education loan against fixed deposit
  • Car loan against fixed deposit
  • Home loan against fixed deposit: Suitable for smaller funding needs. For larger home purchases, a traditional home loan such as Tata Capital Home Loan may be a better option.
  • Loan against tax saver fixed deposit: Not permitted, as tax-saving fixed deposits have a mandatory five-year lock-in period and cannot be pledged as collateral.

Learn More – Documents Required for Loan Against Securities

Loan against fixed deposit vs personal loan: Which is better?

The better choice depends on individual needs. Here’s a table that can help you decide.

ParticularsPersonal loanLoan against fixed deposit
Interest rateUsually higherGenerally lower
EligibilityBased on income, credit score, employment status, and other personal factorsRequires an eligible fixed deposit
Loan amountFlexible, depends on borrower profile and lender terms  Limited to the value of the fixed deposit
ProcessingMay take longer due to verificationUsually faster
End useFlexible, can be used for various needsFlexible, can be used for various needs

Conclusion

A loan against fixed deposit is one of the most affordable borrowing options for fixed deposit account holders because of its lower interest rates.

If you do not have a fixed deposit or require a higher loan amount, consider exploring a Tata Capital Personal Loan that suits your financial needs.

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FAQs

What is a loan against a fixed deposit?

A loan against a fixed deposit is a secured loan you can borrow from a lender by pledging your fixed deposit while it continues to earn interest at the agreed rate.

What is the loan against fixed deposit interest rate?

The loan against fixed deposit interest rate is usually 1% to 2% higher than the fixed deposit interest rate. However, the exact rate depends on the lender and the type of fixed deposit.

Can I get a loan against my fixed deposit without breaking it?

Yes, you can take a loan against your fixed deposit while keeping it intact. The fixed deposit is pledged as security for the loan and continues to earn interest at the agreed rate.

What are the disadvantages of the loan against fixed deposit?

Loan against fixed deposit disadvantages include:
  • Limited loan amount based on the fixed deposit value.
  • Not suitable for large funding requirements.
  • Requires an eligible fixed deposit as collateral.
  • Risk of investment liquidation in case of loan default.
  • Deposit remains under lien until the loan is repaid.

Can I take a loan against a tax-saver fixed deposit?

No, you cannot take a loan against a tax-saver fixed deposit, as it has a mandatory lock-in period.

How much loan can I get against my fixed deposit?

Most lenders offer 75% to 90% of the fixed deposit amount, depending on their policies.

Is a loan against a fixed deposit better than a personal loan?

If you have a fixed deposit, a loan against it is usually cheaper than a personal loan because it is secured.
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