Fixed deposits are one of the most trusted savings tools. They offer steady returns and low risk. But what happens when you need urgent funds and don’t want to break your FD? This is where a loan against your FD becomes helpful. It allows you to get funds without affecting your savings. To make a smart choice, it’s essential to understand the interest rate for a loan against a fixed deposit and how it compares to other options, such as personal loans or loans against property.
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What Is a Loan Against Fixed Deposit?
A loan against a fixed deposit (FD) is a secured loan, where your FD acts as collateral. Banks allow you to borrow up to 90% of the FD amount, depending on the bank’s terms. Since your FD backs the loan, the process is quick and requires minimal paperwork.
The main reason people choose this option is the lower interest rate. The interest rate for loan against fixed deposit is usually just 1–2% higher than the interest you’re already earning on your FD. This means if your FD gives you 7% per year, the loan may cost you around 8%–9%. That’s much cheaper than a personal loan, which could charge you 12% or more.
Benefits of a Loan Against FD
- You avoid breaking your FD
Your investment continues to earn interest.
- Lower cost of borrowing
The interest rate for a loan against a fixed deposit is among the lowest in the market.
- Quick approval
Because it’s a secured loan, banks approve it faster than other loans.
- Flexible repayment
You can repay the loan in equal monthly instalments (EMIs) or a lump sum at maturity.
This type of loan suits individuals who need short-term funds without sacrificing their savings.
How to Compare Interest Rates Smartly?
Not all banks offer the same terms and conditions. So, before applying, take time to compare. Here’s how:
- Know the Base Interest
Start with the interest your FD earns. If it’s 7%, the bank might charge 1% to 2% more for the loan.
- Compare Different Banks
Some banks charge only 1% more, while others may charge a higher rate. Always check the exact interest rate for a loan against a fixed deposit.
- Check Hidden Charges
Along with interest, look for processing fees, documentation charges, or prepayment penalties.
- Look for Online Tools
Use bank websites or financial portals to compare rates quickly and easily. Many even offer calculators to help estimate your EMI.
- Check Loan-to-Value Ratio
Some banks may offer loans for up to 85% of your FD value, while others may go up to 90%. A higher ratio is better for you.
How Does It Compare to a Loan Against Property?
You might also consider a loan against your home or land. While this gives access to a higher amount, it comes with more paperwork, longer approval times, and sometimes higher costs. So, before choosing between the two, ask yourself:
- How quickly do you need the money?
- How much do you want to borrow?
- Are you eligible?
Loan against property eligibility depends on several factors, including your income, property type, and credit score. On the other hand, a loan against an FD is simpler and quicker. However, if you require a larger loan, a property-backed loan may be a better option.
Still, even for property loans, interest plays a big role. In some cases, the interest rate for a loan against a fixed deposit can be much lower, making it more cost-effective if the loan amount is small.
When to Choose a Loan Against FD?
- You need funds urgently.
- You want to keep your FD investment safe.
- You prefer low paperwork and fast approval.
- You don’t want to risk your house or land as collateral.
This loan is ideal for emergencies or short-term needs. Since your FD is already with the bank, approval is quick, and you can get the loan in just a few hours.
A Few Things to Remember
- You can’t close the FD until the loan is repaid.
- If you fail to repay, the bank may adjust the loan from your FD.
- It’s not ideal for very long-term borrowing.
Also, make sure you are not using the loan amount for high-risk investments. Keep it for real needs.
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Final Thoughts
Understanding the interest rate for loan against fixed deposit can help you make better financial decisions. It’s a simple, affordable, and smart way to manage short-term cash needs. When comparing other loans, also consider your loan against property eligibility to determine what works best for you. So, whether you opt for a loan against your FD or property, the key is to compare thoroughly, read the terms carefully, and borrow only what you need.