Benefits of Loan on Fixed Deposit
A loan on fixed deposit is a secured loan where you use your FD as collateral to borrow money without breaking it. This is a smart financial option during emergencies or short-term cash needs. It offers low interest rates, quick approval, and no impact on your FD earnings. Whether you need funds for education, medical bills, or business use, this loan provides flexibility and financial safety. In this article, we will explain the key benefits of loan on fixed deposit, eligibility, and why it can be a better option than personal loans.
What is a Loan on Fixed Deposit?
A loan on FD allows you to borrow money against your fixed deposit without withdrawing or breaking it. Most banks and financial institutions offer up to 90–95% of your FD amount as a loan. You pay interest only on the borrowed amount, not the entire FD value. The interest rate is usually 1% to 2% higher than your FD rate, making it much cheaper than other loan types.
Key Benefits of Loan on Fixed Deposit
1. Low Interest Rate
Since it is a secured loan, the interest rate is lower compared to unsecured loans like personal or credit card loans. You save more on repayment.
2. No Need to Break FD
You can use your FD as security and still continue to earn interest on it. This way, your savings remain intact, and you meet your financial needs at the same time.
3. Quick and Easy Approval
Loan approval is instant or takes just a few hours. As the FD is already with the bank, there is no need for lengthy verification or documentation.
4. No Impact on Credit Score
Most banks don’t check your credit score for this loan. Even if you have a low credit score, you can still get approval easily because the loan is backed by your FD.
5. Minimal Documentation
Since the bank already has your KYC and FD details, you don’t need to submit too many documents. This makes the process faster and more convenient.
Other Advantages
6. Flexible Loan Amount
You can borrow a small or large amount based on your FD value. Whether it’s ₹10,000 or ₹10 lakhs, the flexibility helps with both minor and major expenses.
7. Tenure Matches FD
The loan repayment tenure is usually the same as the FD’s maturity. This makes planning easier and avoids long-term debt burden.
8. Prepayment Without Penalty
You can repay the loan before the due date without any prepayment charges in most cases. This helps you save more on interest.
9. No Additional Collateral
There’s no need to mortgage property or provide guarantors. Your fixed deposit alone is enough to secure the loan.
10. Online Availability
Many banks offer loans against FD through net banking and mobile apps, allowing you to get funds anytime, anywhere.
Ideal Situations to Use a Loan on FD
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Emergency medical needs
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Child’s education or marriage
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Short-term business needs
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Travel or personal expenses
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Temporary cash flow issues
Using a loan against FD is always better than breaking your deposit or using a high-interest credit card.
Final Thoughts
The benefits of loan on fixed deposit make it a reliable and cost-effective borrowing option. With lower interest, fast disbursal, and no impact on your savings, it offers peace of mind during financial stress. Always check with your bank for their terms and compare rates before applying.