The Benefits of Taking a Loan Against Your Fixed Deposit

The Benefits of Taking a Loan Against Your Fixed Deposit

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Fixed deposits (FDs) have long been a favourite investment choice due to their safety and fixed returns. However, many people are unaware that they can also serve as collateral for loans. Taking a loan against your fixed deposit can help you access funds when needed without breaking your investment. In addition, digital tools such as an FD calculator make it easier to plan your loan and repayments. This article explores the advantages of borrowing against your fixed deposit and how to make the most of these helpful tools.

What is a loan against a fixed deposit?

A loan against a fixed deposit allows you to borrow money from a bank or financial institution by pledging your FD as security. The loan amount is typically a percentage of your FD, usually between 75% and 90%, depending on the institution’s policies. The best part is that you can borrow money while your FD continues to earn interest, and the loan often comes with a lower interest rate than unsecured loans.

Benefits of taking a loan against your fixed deposit

1. Access funds without breaking your FD

One of the main benefits of taking a loan against your fixed deposit is that you don’t have to break your FD to access funds. This means your FD will continue to earn interest, allowing you to keep your long-term financial goals intact while meeting your short-term financial needs.

2. Lower interest rates

Loans against fixed deposits come with lower interest rates than other unsecured loans such as personal loans or credit card debt. This is because the loan is secured by your FD, making it less risky for the lender. The interest rate is usually only slightly higher than the interest rate on the FD, making it a cost-effective borrowing option.

3. Quick and hassle-free approval

Since your FD acts as collateral, the loan approval process is typically faster and easier than with other loans. Banks and financial institutions do not require extensive credit checks or documentation, and the loan amount is usually disbursed quickly—sometimes on the same day. This makes it a convenient option during emergencies.

4. No impact on credit score

Because the loan is secured against your FD, your credit score does not play a significant role in the approval process. This is particularly beneficial for those with low or moderate credit scores. Additionally, since the loan is secured, repaying it on time will not harm your credit rating.

5. Flexible repayment options

Loans against FDs often come with flexible repayment options. You can choose to repay the loan in instalments or make a lump sum repayment at any time. Some banks also allow prepayment of the loan without charging penalties. This flexibility makes it easier to manage your finances.

6. Use of an FD calculator

Before applying for a loan against your FD, it’s essential to plan your loan amount and repayment schedule. An FD calculator is a handy tool that helps you calculate the loan amount you’re eligible for based on your FD’s value and the interest payable. It allows you to input various parameters such as the deposit amount, tenure, and interest rate to get a clear estimate of your loan terms.

7. FD online calculator for convenience

For those who prefer digital tools, an FD online calculator is available on most banking websites and apps. It helps you calculate your loan eligibility and repayment amounts without needing to visit a branch. You can experiment with different loan amounts and repayment terms to find the most suitable option for your financial situation. The convenience of using an FD online calculator from your home adds to the ease of managing your loan.

Ideal situations for taking a loan against your fixed deposit

Taking a loan against your FD is ideal for a variety of scenarios:

●        Emergency funds: In situations such as medical emergencies or sudden travel expenses, borrowing against your FD can be a quick and reliable way to get funds without disturbing your long-term savings.

●        Short-term financial needs: If you need funds for short-term expenses like home renovations or education fees, a loan against your FD allows you to borrow money while your investment continues to grow.

●        Business cash flow issues: Entrepreneurs or small business owners facing short-term cash flow problems can use their FD to secure a loan, giving them access to working capital without selling other assets.

●        Debt consolidation: If you have high-interest loans or credit card debt, you can use a loan against your FD to consolidate those debts into a single, lower-interest loan, reducing your overall financial burden.

How to apply for a loan against your fixed deposit

Applying for a loan against your FD is simple and straightforward. Here are the general steps involved:

  1. Check eligibility: Ensure that your FD meets the minimum deposit requirement for loan eligibility. Most banks allow loans of up to 90% of the FD amount.

  2. Use an FD calculator: Calculate the amount you can borrow and estimate your monthly repayments by using an FD calculator. An FD online calculator provides an accurate estimate of the loan terms based on your deposit value and interest rate.

  3. Submit the application: You can apply either online through the bank’s website or by visiting a branch. Fill out the loan application form and provide necessary documents such as your FD certificate and identification proof.

  4. Loan disbursal: Once the application is approved, the loan amount is credited to your account, often within a day.

Conclusion

A loan against your fixed deposit is a smart way to access funds without disturbing your long-term investments. With benefits such as lower interest rates, quick approval, and flexible repayment options, this type of loan is an excellent choice for managing short-term financial needs. Furthermore, tools like an FD online calculator simplify the process, allowing you to plan your loan and repayments with ease.

By leveraging your FD as collateral, you can enjoy financial flexibility while continuing to earn interest on your investment. Whether you need money for an emergency, short-term expenses, or business purposes, a loan against your fixed deposit provides a practical and cost-effective solution.

Disclaimer: This article is published in association with Bajaj Finserv and not created by TNM Editorial.

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