New Delhi:
If you have a long-term fixed deposit (FD) and require funds before its maturity, opting for a loan against FD can be more beneficial than breaking the FD or resorting to a personal loan.
By choosing a loan against FD,
you can retain your savings and repay the loan gradually with a lower interest rate, avoiding penalties and reduced interest earnings.
Better Option for Long-Term FD Holders
If you’ve invested in a long-term FD and find yourself in need of funds before maturity, opting for a loan against FD can be advantageous.
Breaking the FD prematurely often incurs penalties and reduces interest earnings.
In contrast,
a loan against FD allows you to retain your savings while accessing funds at a lower interest rate.
Loan Amount Availability
The loan amount you can avail from the bank against your FD is typically 90% to 95% of the FD amount.
Notably, this type of loan is secured, as banks use your FD as collateral.
Cost Comparison: Loan Against FD vs. Personal Loan
Loans against FDs generally incur an interest rate 1% to 2% higher than the FD interest rate.
For example, if your FD yields a 7% interest rate over 5 years, the loan against it might bear an interest rate of 8% to 9%.
In contrast, personal loans may charge higher interest rates, typically ranging from 11% to 14% or more.
Additionally, while personal loans often involve processing fees, loans against FDs usually do not.
Repayment Tenure
The repayment tenure for a loan against FD aligns with the FD’s tenure.
You must repay the loan before the FD matures.
Failure to repay on time may result in the loan being covered by your FD amount.
You have the flexibility to repay the loan either in lump sums or installments according to your convenience.
