Usually, such loans are available in the form of overdrafts or demand loans.
These loans carry interest rates that are typically 1 to 2 per cent higher than the interest rate of the Fixed Deposit.
In case you have a low credit score, do not meet the income eligibility criteria, or have no collateral to secure a loan, you have the option to borrow money against your fixed deposit (FD). These loans carry interest rates that are typically 1 to 2 per cent higher than the interest rate of the Fixed Deposit and can be paid back over a maximum period of 60 months. Usually, such loans are available in the form of overdrafts or demand loans. In most cases, you can apply for a loan against your fixed deposit online without having to visit the bank branch, except for a few exceptional cases.
Some of the banks that allow you to apply for such loans online through their websites include HDFC Bank, State Bank of India, Axis Bank, and Deutsche Bank. However, in the case of Federal Bank, you will have to visit the nearest branch to apply for such a loan.
Eligibility criteria to avail of a loan against fixed deposit
Individuals/entities who meet the following requirements are eligible for a loan against their fixed deposit with a bank:
Resident Indian citizens
Hindu Undivided Family (HUF)
Clubs, societies, and associations
Family Trusts
Group companies, sole proprietorships, and partnership firms
Features and benefits of availing loan against a fixed deposit:
Lower interest rates
You can obtain a loan against your fixed deposit at a lower interest rate as your fixed deposit is used as collateral. Such loans typically have interest rates that are 2 to 2.5 per cent lower than personal loans. Consequently, the EMIs on these loans are more affordable.
No credit score check
When you apply for a loan, lenders typically evaluate your credit score to determine your eligibility. However, when it comes to a loan against a fixed deposit, your credit score or CIBIL score is not taken into consideration. Therefore, people with low or no credit scores can benefit from such loans as they are not required to have a high credit score to be eligible.
No prepayment penalty
When you make an early payment towards a loan, banks usually charge a penalty as they lose out on the interest amount. However, in the case of a loan against a fixed deposit, banks do not charge a penalty since they do not lose out on the interest amount. They benefit from it since they do not have to pay you any interest on the loan amount.
The loan amount is going to depend on the FD amount
Your maximum loan amount is influenced by factors such as your credit score, income, tenure, and other criteria. On the other hand, for a loan against FD, the maximum amount of the loan is decided by the amount you have deposited in your FD account. This implies that a higher amount of money deposited in your FD account makes you eligible for a larger loan.
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