Life is full of uncertainties. No one knows when a financial emergency will occur in their life. People usually prefer to take loans or liquidate their investments if any financial emergency occurs.
There are many loan options available in the market. Availing of the Loan against FD is a quick and easy way to get a loan and borrow money from lenders. It is a good option that withdraws money or liquidates your investment.
If we talk about the basics of this Loan, then FD is considered the most preferred investment option that provides high liquidity and security. There are many benefits to taking the Loan against securities. Read more to know how the Loan against securities a worthy take is: –
What is Loan against a fixed deposit?
A loan against fixed deposit is a secured type of Loan that you can easily get by pledging the FD as collateral. Usually, most banks provide 85% to 90% of the fixed deposit amount as a Loan.
On the other hand, many non-banking financial corporations provide up to 75% of the fixed deposit amount as a Loan. The interest rate for loans against fixed deposits ranges between 0.5% pa to 2 %pa above the FD interest rates.
Benefits of Loan against the FD
There are many reasons behind taking a Loan against FD instead of taking another loan or liquidating the fixed deposits.
1. Low-interest rate
Fixed deposit is a secure and hassle-free Loan, which makes it a good choice for investment. The interest rate applicable to Loan against a fixed deposit is less than other types of Loan. It ranges from 0.5%pa to 2% pa. above the existing fixed deposits interest rate
2. No hidden fees
If you take the Loan from a lender, they will charge a different kind of fee, like processing fees, foreclosure charges, etc. The processing fee is 1-2% of the loan amount. The best thing is that you can get the Loan against FD easily because it has come with an overdraft facility. It means you do not need to pay any foreclosure charges if you take Loan against FD.
3. No need to worry about EMI
The overdraft facility of the Loan against FD provides you with repaymentflexibility. As it does not have a fixed repayment time, you can repay the Loan easily at your convenience, either in installments or the total amount.
4. Not to liquidate the FD.
As the Loan against the FD is backed by fixed deposits, the margin amount is lower. In this, you can get a loan of up to 90% of your fixed deposits. In case of an emergency, you do not need to liquidate your fixed deposits. You can easily take the Loan against fixed deposits in this case.
Conclusion
Fixed deposit is the older and wise type of investment to choose. When you are hit by an emergency, you should take Loan against FD, as it provides you funds in emergencies.
If you have a fixed deposit or can repay the full loan amount within the loan agreement period, then Loan against FD is the best choice for you.