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Tata Capital > Blog > Personal Use Loan > What is a Personal Loan Against Fixed Deposits? How is it beneficial?

Personal Use Loan

What is a Personal Loan Against Fixed Deposits? How is it beneficial?

What is a Personal Loan Against Fixed Deposits? How is it beneficial?

What do you do when a sudden substantial expenditure lands at your doorstep? One of the most common knee-jerk reactions is to dissolve savings. But, what if there is a better way where you don’t have to bite into your hard-earned savings? Instead of liquidating money kept for a rainy day, take a personal loan against a fixed deposit.

What is a loan against an FD?

If you are in sudden need of funds, you can pledge your FD as collateral to avail the same or a slightly lesser amount of loan against it. A personal loan against FD is a quick and convenient way to acquire substantial funds without breaking your deposit with the bank.

Benefits of an FD-backed loan

Making an application for loan against fixed deposit comes with a host of advantages, such as:

• Receive a loan at nominal interest rates

Perhaps the most tempting benefit of taking an FD-backed loan is that it comes at a significantly low interest rate. This is because the bank or NBFC already has the money borrowed in the form of a deposit. So, lenders often offer an FD loan for personal reasons at as little as 2% above your FD rate.

• Apply without any hassles

The application process for an FD-backed personal loan is straightforward. Since you already are a customer with a financial institution, you need to submit minimal documentation. Usually, the lender will ask you to fill out a single-page form, post which they will approve the loan and disburse funds into your account.

Lastly, you can also apply for this kind of loan online. Various lenders offer sophisticated net and mobile banking portals that reduce your application and approval time.

Additional Read:  How to Choose the Best Personal Loan for Needs?

• Continue earning interest on your fixed deposit

Yes, even though your FD is now collateral, it doesn’t mean you won’t earn interest on it. In fact, since you never had to break the fixed deposit to take the loan, you continue earning interest on it. This way, you keep your savings instruments intact while paying the loan EMIs.

• Avoid paying hefty processing fees and foreclosure charges

When you avail of personal finance against your FD, your lender may not charge any processing fee or might deduct a nominal one. Furthermore, most lenders also don’t deduct foreclosure charges or levy other hidden costs.

Additional Read: Personal Loan Fees and Charges – Explained

Final thoughts

A loan against FD is a great option to use your investment to meet your financial needs. But you might not always have an FD to pledge. Not to mention, you can only get up to 90% of the FD deposit amount as a loan. If you only need money for short-term needs, a regular loan for personal use can be a better alternative.

If you are looking for a credible lender for availing of personal finance, turn to Tata Capital. We offer loans at competitive interest rates, flexible repayment tenures, and minimal documentation.

So, why wait! Check your potential instalments with us with the help of our personal loan EMI calculator.

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