Loan Against Fixed Deposit (FD)

A loan against fixed deposit (LAFD) involves using your investment as collateral, providing security for the loan. Similar to other credit options, you receive the loan amount as a lump sum, with the flexibility to repay anytime before maturity. Depending on the lender, you may be eligible for a loan amount of up to 75% of your cumulative fixed deposit. In case of non-cumulative FD, you will receive up to 60%. 

The terms and conditions, including the loan’s interest rate and repayment tenor, vary across lenders. When banks give such a loan, they charge up to 2% higher rates than the existing FD interest rate. 

Opting for this loan facility is a better option than prematurely withdrawing your FD. This is because premature FD withdrawals attract a penalty that ranges from 2-3% of the interest rate.

The entities mentioned below are eligible for this loan:

• Resident Indian citizens

• Individuals and joint fixed deposit account holders

• Hindu Undivided Family (HUF)

• Family trusts

• Sole proprietorships, partnership firms, and group companies

• Clubs, associations, and societies

However, the below types of FDs are not eligible for a loan against fixed deposit:  

• FD in the name of a minor 

• Tax-saver FD

You can easily avail of a loan against FD. However, in case of a physical application form, you need to submit the following documents: 

• Signed application for loan against fixed deposit

• FD receipt discharged in favour of the lender

• Standing instructions to the bank, if any

There may be minor variations in the documents required depending on the lender. Check with your issuer before applying to ensure that you have all the necessary paperwork handy.

A loan against fixed deposit is offered as an overdraft facility. Banks and NBFCs provide this credit facility to help you withdraw funds during emergencies.

However, note that you are charged a higher interest rate than the existing rate on your deposit when you avail of the loan. This interest rate is only charged for the amount you have withdrawn, and not the entire overdraft limit.

Repaying this loan is a simple process, either as a lump sum or in monthly instalments. This entirely depends on your financial obligations. However, ensure to repay the loan before the FD matures.

In case you default, the bank or NBFC has the authority to recover the balance amount (principal + interest) at the time of FD maturity. The repayment terms are also at the discretion of the issuer. This is why it is essential that you carefully assess the terms and conditions of your loan against FD. 

For assessing your monthly repayment amount, you can use the online FD calculator on the Bajaj Markets website. This way, you can get a rough estimate of your EMIs and gauge if the loan is the right option for you.