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    Loan Against Fixed Deposit

    A loan against Fixed Deposits is precisely what the name implies; it is a loan obtained against the amount invested in a fixed deposit. Loans against fixed deposits can be a smarter option while availing loans, as these are easier to obtain and the interest rate for these loans is much lower than traditional loans.

    Loans are traditionally obtained to meet emergency needs, which involve liquid cash. Breaking a fixed deposit might come to mind to meet this requirement but obtaining a loan against the fixed deposit makes more sense. Money invested will continue to fetch interest once the loan has been cleared and the interest paid on loan could be less than the overall interest earned at times.

    Fixed Deposits are a popular investment choice and a majority of individuals keep their savings in such deposits. Most fixed deposit loans are given in the form of an overdraft against the deposited amount. This loan ensures that any emergency can be dealt with and the amount in the deposit remains as it is.

    What are fixed deposits?

    A fixed deposit refers to a sum of money invested in a bank or any other financial institution which offers the depositor a specific interest which is paid for the duration of the deposit. A fixed interest rate is given on the investment for a fixed period of time. Once the investment reaches maturity, both the principal amount and the interest are paid back to the investor. A Fixed Deposit account is one of the most favoured accounts, owing to the high rate of interest offered by banks and financial institutions.

    A Fixed Deposit is generally used by both individuals and organisations to store liquid funds for a fixed period, which can then be used for any future needs. Fixed Deposits are considered a safe investment option and while the interest rate offered by them is on the lower side, they still offer decent returns on the investment. Fixed Deposits are often referred to as Term Deposits in many countries.

    Interest rates on Fixed Deposits vary according to the term period, with longer term periods attracting better rates. Fixed Deposits can be opened for terms ranging from a minimum of 7 days to a maximum of 10 years.

    How much loan can be availed against Fixed Deposits?

    The loan amount which can be obtained against fixed deposits depends on the initial amount invested in them. A majority of banks which offer loans against fixed deposits provide loans upto 70-90% of the fixed deposit investment. This loan amount varies from bank to bank and certain banks are known to provide loans up to 95% of the investment, in cases where the initial investment is over Rs 50 lakh. Lower investments generally translate into lower loan amounts.

    Loans over Rs.1 crore can be availed based on the investor’s relationship with the bank and there is generally no fixed upper limit on the loan amount, as it entirely depends on the money invested in the fixed deposit. Higher the fixed deposit amount, higher the loan in most cases.

    Loan Tenure

    The tenure of any loan obtained against fixed deposits depends on the tenure of the fixed deposit. The loan tenure cannot extend beyond the term of the fixed deposit and is available only for the remaining period up to maturity. For example, if a loan is availed against a fixed deposit of 5 years after 1 year, the individual has to repay the loan within the next 4 years, before the fixed deposit reaches maturity. In case of foreign currency loans, most banks provide it for a minimum period of one year and the maximum period to clear the loan is on maturity of the fixed deposit. The loan can be availed at any time during the fixed deposit tenure.

    Features and Benefits of Loan against Fixed Deposits

    An individual who chooses to avail a loan against fixed deposits has many advantages over conventional loans. Some of the major features and benefits are mentioned below.

    • High Loan Amount – Individuals can get loan amounts up to 95% of the fixed deposit investment. This means higher the investment one has higher the loan they can get. Most banks sanction loans which are 80-90% of the invested amount and if the individual has a long history with the bank they can get higher amounts sanctioned.
    • Hassle Free – Most banks offer loans against fixed deposits without much hassle. An individual is not required to fill out detailed forms or go through a strict process before getting the loan. The process is fast and simple.
    • Low interest – The interest for loans availed against fixed deposits are comparatively lower than Interest rates for Personal Loans obtained by other means. The interest rate is generally 1-2% more than the interest rate an investor gets on his/her deposits. Interest is charged only on the amount utilized as loan and not the entire fixed deposit amount.
    • Flexible Repayment – The loan amount can be paid in flexible terms, with no strict payment dates and terms.
    • Liquidity – Loans obtained against fixed deposits offer instant liquidity in case of emergencies. These loans allow the individual to keep the fixed deposit secure and offer an alternative to breaking the fixed deposit to cater to urgent monetary needs.
    • Low processing fee – Loan applicants are not subjected to high processing fee by banks and the loan can be availed for negligible processing fee. Applicants who are on good terms with the bank could also get the entire processing fee waived.
    • No prepayment charges – Most banks do not charge a prepayment fee in case of early payment of loan.
    • No foreclosure fee – A majority of the banks do not charge any penalty in case of foreclosure on loans obtained against fixed deposits.
    • Payment only for utilisation – Loans against fixed deposits offer individuals the flexibility to pay for the loan only when they use it. They always have access to the available credit when they need it.

    Purposes for which loan money can be used

    • Personal Expenses – The loan amount can be used to pay for any personal expenses like home renovation, vehicle purchase, education bills, medical emergencies, wedding expenditure, and so forth.
    • Property – The money can be used to purchase property in India.
    • Business – The money can be used to meet business requirements such as purchasing assets, equity contribution or as working capital.

    Purposes for which loan money cannot be used

    A few banks mention certain restrictions on using loan money for certain purposes.

    • Investment in Chit-funds - The loan money cannot be used to invest in chit-funds or similar companies.
    • Investment in shares – Some banks do not allow the loan money to be used as an investment in shares or securities.
    • Re-lending money – The money obtained as loan cannot be re-lent to other individuals.
    • Agricultural Activities – A few banks restrict loan applicants from using the money for agricultural or plantation activities.

    Eligibility criteria

    • Applicant should have a fixed deposit account with the bank.
    • Applicant should be at least 21 years old.
    • Individual businesses which want to avail loan should be either sole proprietorship or partnership firms.
    • Certain banks allow only private limited companies and stock brokers to avail this loan.
    • The fixed deposit should not have reached maturity at time of applying for loan.
    • Loan can be obtained only if the deposit is free from any restraint or encumbrance.
    • Loan cannot be granted against fixed deposits which are held in the name of minors.
    • Loan can be availed only against deposits held by members of the same household/family.
    • Loan cannot be availed if the applicant has plans to close the deposit.

    Documents required

    • Filled up application form.
    • Fixed Deposit details including receipts discharged in favour of the banks.
    • A cancelled cheque might be required if loan is being taken from financial institutions other than banks.
    • Duly signed agreement letter.
    • Passport size photographs.
    • Valid identity proof.

    Interest rate and fees

    The interest rate for loans against fixed deposits are comparatively lower than the rates charged for other types of loans. Banks generally charge an interest rate which is 2-2.5% higher than the interest rate being paid by the bank on the fixed deposit. This amount varies from bank to bank, with private banks generally charging a higher interest than nationalised banks.

    For example, let us say that an individual customer has a fixed deposit which earns him interest at the rate of 10% per annum. If he/she wishes to avail a loan against this fixed deposit the bank will charge him/her an interest rate of 12 to 12.5%, depending on bank policies. This interest will be charged only for the period for which the loan is availed and not the entire term of the fixed deposit.

    Banks generally charge a minimum processing fee, which can be a few hundred rupees to process the loan. This fee can be waived if the applicant is on good terms with the bank and has a good reputation. A few banks do not charge any processing fee or hidden charges and most banks do not charge pre-closure charges either.

    Repayment

    Banks offer customers different repayment options. There are generally no fixed repayment dates and a working relationship can be charted out between the bank and the loan applicant. Some banks insist on payment of interest on a monthly basis while some allow the interest to be paid at maturity. In cases where the interest plus loan amount exceeds the deposit the customer might be asked to repay part of the amount immediately.

    Advantages over breaking the Fixed Deposit

    Taking a loan against fixed deposits can be better than breaking the fixed deposit to meet demands. The first benefit is that one does not have to pay a penalty for premature withdrawal, which is generally about 1% of the rate.

    The interest rate which is charged by banks for loans against fixed deposits is much lower than other rates. Banks generally charge a rate which is 2% higher than the interest being earned on the deposit. A loan availed at this rate might ultimately cost the applicant no money, with the interest earned being more than the interest paid.

    Consider the following case where a man who has a fixed deposit of Rs 10 lakh for 2 years at an interest rate of 10% per annum. If he decides to take a loan of Rs 8 lakh for 1 year at an interest rate of 12% he ends up paying Rs 9600 as interest. The interest accumulated on the sum over the complete duration is Rs 11,000. Thus even after paying off the interest on the loan the man manages to earn Rs 1400 as interest.

    FAQs

    Can NRIs avail loan against Fixed Deposits?

    Yes, NRIs can avail loans against fixed deposits, if they satisfy certain conditions.

    Are loans against fixed deposits exempt from tax?

    No, the interest earned on fixed deposits are not exempted from tax. The loan amount is subject to tax if it falls under the taxation bracket.

    What is the minimum and maximum loan which can be availed against fixed deposits?

    Certain banks state that the minimum loan which can be availed against fixed deposits should be Rs 25,000 and the maximum amount which can be availed is 95% of the deposit value. These numbers vary from bank to bank.

    Is interest for loans charged for the entire duration of fixed deposit?

    No, an interest is charged only for the period till the loan is cleared. No interest is charged on the amount once all dues are paid.

    Does the Fixed Deposit continue to earn interest during the period of loan?

    Banks do not give the entire deposit as loan amount and the amount which is left in the Fixed Deposit after processing the loan continues to earn interest even during the loan period.

    Loan Against Fixed Deposit Reviews

    • Bank Bazaar Personal Loan
      "Excellent"
      0.5 5.0/5 "Blown Away!"
      The helpline number was not easily approachable whenever I call the bank bazaar customer service, it does not connect with the representative. I have been using it for 6months. Earlier I took my credit, the process was simple. The mobile app is convenient to check the credit score and have no issues.
      Was this review helpful? 2
      , hyderabad
      Reviewed on Jan 18, 2019
    • HDFC Bank Personal Loan
      "Better"
      0.5 4.5/5 "Excellent!"
      There was delay in the loan process and HDFC have taken around one month. The rate of interest and charges are little bit high compared to others. I have submitted the documents online and also to the executive. I can do pre closure with extra charges and part payment can be done after one year. The loan duration is 2 years.
      Was this review helpful? 2
      , hyderabad
      Reviewed on Jan 18, 2019
    • ICICI Bank Personal Loan
      "Its Good"
      0.5 4.0/5 "Great!"
      I approached ICICI personal loan through online channel, ICICI taken care and disbursed the amount within two to three weeks of time, But I felt interest rate is good in Tata capital as compared to ICICI. But still I recommend ICICI bank its good.
      Was this review helpful? 1
      , bangalore
      Reviewed on Jan 18, 2019
    • Axis Bank Personal Loan
      "Very Good Service"
      0.5 5.0/5 "Blown Away!"
      I had taken this loan some time back and i had foreclosed this loan a long time back. The overall experience with them has been quite good where the interest rate with them has been nominal when compared with the market rate and there has not been any foreclosure charges with them.
      Was this review helpful? 1
      , bangalore
      Reviewed on Jan 18, 2019
    • HDFC Bank Personal Loan
      "Very Good Service"
      0.5 5.0/5 "Blown Away!"
      It has been quite a good experience i had with this loan and the loan amount which they had provided has been sufficient as well. The interest rate which they where offering has been nominal with the market rate, and there is some pre closure charges with them and there has also been some processing fee with them.
      Was this review helpful? 1
      , bangalore
      Reviewed on Jan 18, 2019
    • Bank Bazaar Personal Loan
      "Quick Wind for the financial products"
      0.5 5.0/5 "Blown Away!"
      I never seen such kind of support any where like Bank Bazaar, whenever I update any request I get reply through msg or mail. Its a right path or helping source for the people to take the banking products on the time schedule. The customer support is very nice and helpful.
      Was this review helpful? 1
      , bangalore
      Reviewed on Jan 18, 2019
    • Tata capital Personal Loan
      "Good Professional Service"
      0.5 5.0/5 "Blown Away!"
      When I browsed the online channel, Tata capital is the one having less interest with zero processing fee. That is the reason I took this personal loan from them. The loan process was quite good, the processing time is less. The interaction between me and executive was professional.
      Was this review helpful? 1
      , bangalore
      Reviewed on Jan 18, 2019
    • Bank Bazaar Personal Loan
      "Better"
      0.5 4.0/5 "Great!"
      Although I am not a frequent user of the site, Whenever I need any loans or card that time have visit their website. The website is fine enough. The customer service and response was better. Am using it approx for 6 months. Once have checked the credit score and loan process was simple.
      Was this review helpful? 1
      , bangalore
      Reviewed on Jan 18, 2019
    • Early Salary Personal Loan
      "Excellent"
      0.5 5.0/5 "Blown Away!"
      I took my personal loan from Early Salary through online portal. Everything was fine but executive said will come and collect the documents but nobody turned up . They said if I have refer my friend and will get discount but have not got any discounts. The rate of interest and charges are nominal.
      Was this review helpful? 1
      , bangalore
      Reviewed on Jan 18, 2019
    • HSBC Bank Personal Loan
      "Good service"
      0.5 4.0/5 "Great!"
      I have been holding my personal loan with HSBC bank, ,they have given me sufficient loan amount was sufficient for me, and the rate of interest is very nominal compare to other in the market . There are no hidden charges they have charged me apart from EMI.
      Was this review helpful? 1
      , mumbai
      Reviewed on Jan 18, 2019
    • Kotak Personal Loan
      "Average"
      0.5 1.0/5 "Really Bad"
      I have taken a personal loan from Kotak Mahindra Bank and it was closed in the year of 2018. My experience is not good, have not received NOC on time. They need to improve the customer service. The rate of interest is more compared to others. The documentation process was easy but foreclosure is very difficult.
      Was this review helpful? 1
      , pune
      Reviewed on Jan 18, 2019
    • Bank Bazaar Personal Loan
      "Good"
      0.5 5.0/5 "Blown Away!"
      The customer service and response was good. I have been using bankbazaar.com for the first time and it was recommended by friend. The process was simple and faster. The mobile application is convenient and easy to compare with the banks. I have checked the credit score.
      Was this review helpful? 1
      , pune
      Reviewed on Jan 18, 2019
    • Tata capital Personal Loan
      "Good"
      0.5 5.0/5 "Blown Away!"
      I have applied my personal loan in Tata Capital through online. The rate of interest and charges are nominal. I have received 2.7L excluding processing fee. The loan duration is 5 years. The documents are collected by executive as well as submitted online. They took max 8 to 9 days to deliver the loan.
      Was this review helpful? 1
      , pune
      Reviewed on Jan 18, 2019
    • Bank Bazaar Personal Loan
      "Its Convenient"
      0.5 5.0/5 "Blown Away!"
      Its a good experience I had with Bank Bazaar, the entire loan process was smooth I don't want to anywhere. I got the door step service from the bank, the customer support guided well and helped me out through the process. The information is useful to compare the products.
      Was this review helpful? 1
      , bangalore
      Reviewed on Jan 18, 2019
    • Tata capital Personal Loan
      "Good Experience with Tata Capital"
      0.5 5.0/5 "Blown Away!"
      I got best deal from Tata Capital, the customer support is proactive to process the loan application. But the loan disbursement got delay it should be faster. I got the better interest rate and its zero processing fee from the Tata Capital disbursement.
      Was this review helpful? 1
      , bangalore
      Reviewed on Jan 18, 2019
    • HDFC Bank Personal Loan
      "Interest rate should be standard"
      0.5 4.0/5 "Great!"
      I am not happy with HDFC, comparatively the rates are bit high. Its okay for me, the processing fee is also higher in HDFC, They told some interest but I got some other interest rate. I want to discuss with them and after august it will be one year then I close it.
      Was this review helpful? 1
      , hyderabad
      Reviewed on Jan 18, 2019
    • ICICI Bank Personal Loan
      "Good Experience"
      0.5 5.0/5 "Blown Away!"
      That was better experience, interms of rate of interest. ICICI bank agents are proactive they came to my place and collected the documents and done the process. Then I didn't interact with them. I got the better deal from ICICI on the personal loan.
      Was this review helpful? 1
      , hyderabad
      Reviewed on Jan 18, 2019
    • Bank Bazaar Personal Loan
      "Good customer support and satisfactory"
      0.5 5.0/5 "Blown Away!"
      The quick on their work, whatever I approached they helped me out. I could check all the information based on the requirement. Its a good customer support I can view all the banking options. I am getting promotional mails through the link I have raised the request for the credit card.
      Was this review helpful? 2
      , hyderabad
      Reviewed on Jan 18, 2019
    • Citibank Personal Loan
      "Rate of interest should be reduced"
      0.5 4.0/5 "Great!"
      Citi bank rate of interest is too high for the amount of Rs. 3 lakhs, they have taken some processing fee from the disbursement but it was quite nominal. The documentation process was smooth, on the expected time I got the loan amount from the bank.
      Was this review helpful? 2
      , hyderabad
      Reviewed on Jan 18, 2019
    • Early Salary Personal Loan
      "Excellent"
      0.5 5.0/5 "Blown Away!"
      The rate of interest and charges are nominal. I like the process which was much easier to proceed the personal loan. They did not required any documents and executive came for verification then loan amount was processed. I took 10K and it was paid through online.
      Was this review helpful? 1
      , chennai
      Reviewed on Jan 18, 2019
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