Fixed deposits (FDs) are one of the most popular investment options for individuals seeking safety, steady returns, and financial stability. However, when financial emergencies arise, liquidating your FD isn’t always the best choice. A loan against fixed deposit (FD) provides an alternative that allows you to meet your financial needs while keeping your FD intact. This article explores how a loan against FD works, its benefits, and key considerations.

What Is a Loan Against Fixed Deposit?

A loan against fixed deposit is a secured loan where you pledge your FD as collateral to borrow money. This type of loan allows you to access funds while your fixed deposit continues to earn interest. It’s a cost-effective borrowing option compared to unsecured loans, making it ideal for those who require immediate liquidity.

How Does a Loan Against Fixed Deposit Work?

Here’s a step-by-step breakdown of how a loan against FD works:

1. Pledge Your FD
   The fixed deposit acts as collateral, securing the loan.

2. Loan Amount Eligibility
   Banks and financial institutions offer loans of up to 75%-90% of the FD value, depending on their policies.

3. Interest Rate
   The interest rate on the loan is typically 1%-2% higher than the interest earned on your FD, making it an affordable borrowing option.

4. Repayment
   You can repay the loan through EMIs or a lump sum payment, depending on the terms agreed upon with the lender.

5. FD Maturity
   Your FD remains intact, earning interest throughout the loan tenure. Once the loan is repaid, the lien on your FD is lifted.

Benefits of a Loan Against Fixed Deposit

1. Affordable Borrowing

The interest rates for loans against FD are significantly lower than unsecured loans such as personal loans or credit card advances.

2. Quick Processing

Since your FD acts as collateral, the loan approval process is fast and requires minimal documentation.

3. Preserve Investments

Unlike redeeming your FD prematurely, which may incur penalties and a loss of interest, a loan ensures that your investment continues to grow.

4. No Credit Score Impact

This type of loan is secured by your FD, so it doesn’t heavily rely on your credit score for approval.

5. Flexible Repayment Options

Lenders often provide flexible repayment terms, allowing you to pay in EMIs or clear the loan before the FD’s maturity.

Key Features of a Loan Against Fixed Deposit

Loan-to-Value Ratio (LTV)

Lenders typically offer loans between 75%-90% of the FD amount.

Tenure

The loan tenure generally matches the remaining duration of your FD.

Interest Payment Options

Some lenders allow you to pay only the interest during the loan tenure and the principal at the end.

Prepayment Facility

Most lenders allow prepayment without penalties, providing additional financial flexibility.

Who Can Apply for a Loan Against Fixed Deposit?

A loan against FD is suitable for:

• Individuals Facing Financial Emergencies: Quick access to funds without liquidating your investments.
• Small Business Owners: Affordable credit for working capital or short-term needs.
• Senior Citizens: Utilize their fixed deposit to meet unexpected medical or other urgent expenses.

Steps to Apply for a Loan Against Fixed Deposit

1. Choose a Lender

If your FD is with a bank or financial institution, they are usually the most convenient choice for availing the loan.

2. Submit Application

Fill out the loan application form, either online or at the branch.

3. Pledge Fixed Deposit

The lender will place a lien on your FD until the loan is repaid.

4. Loan Approval and Disbursement

The loan amount is disbursed quickly after verifying your FD details and eligibility.

5. Repayment

Repay the loan as per the agreed schedule. Once fully repaid, the lien on your FD is released.

How to Use the Bajaj Finserv App for Loans Against Fixed Deposit

The Bajaj Finserv app simplifies the process of availing a loan against FD. Here’s how it can help:

• Quick Application: Apply for the loan in just a few clicks.
• Loan Details: View loan eligibility, interest rates, and repayment schedules easily.
• Track Your FD: Monitor your FD’s performance and linked loan details in real-time.
• Repayment Alerts: Set reminders to avoid missing EMI payments.

The app makes the borrowing process seamless and ensures complete transparency.

Alternatives to Loans Against Fixed Deposit

If you’re exploring other borrowing options, consider these:

1. Personal Loans

While convenient, they come with higher interest rates and stricter eligibility criteria.

2. Loan Against Property

A viable option for larger financial needs, but the approval process is longer.

3. Overdraft Facility

For individuals with savings accounts, an overdraft against your balance may be a quick and flexible solution.

Things to Consider Before Opting for a Loan Against FD

1. Penalty on FD Maturity

Ensure that taking the loan doesn’t affect your FD’s maturity benefits.

2. Loan Tenure

Align the loan tenure with your repayment capacity and the FD’s remaining term.

3. Emergency Fund Planning

If the FD is your only emergency fund, weigh the pros and cons of pledging it.

Conclusion

A loan against fixed deposit is an excellent financial tool that allows you to unlock liquidity without breaking your investment. It offers affordable interest rates, quick processing, and the ability to retain your FD’s benefits. Whether you need funds for personal emergencies, business needs, or other financial goals, this loan provides a cost-effective and hassle-free solution.

With digital platforms like the Bajaj Finserv app, applying for and managing your loan against FD becomes even more straightforward. By carefully evaluating your financial situation and understanding the loan terms, you can make the most of this flexible borrowing option while securing your financial future.