The credit limit is usually in the range of 70–95 per cent of the deposit amount.
In times of financial urgency, we often turn to friends, relatives, or lending institutions for monetary aid. While personal loans and gold loans are common choices, a lesser-known option, often offering a more economical solution, is the loan against a fixed deposit (FD). Contrary to personal and gold loans, a fixed deposit loan boasts a lower interest rate, presenting a feasible avenue for obtaining funds.
The popularity of loans against fixed deposit
Should you hold a bank-fixed deposit, this could be a remarkably advantageous resource in critical situations. Regarded as a secured loan, banks are more inclined to extend this credit during emergencies due to its collateral-backed nature. An exceptional attribute of this loan is its flexible repayment period, which adapts to the borrower’s convenience. Notably, a fixed deposit-based loan is renowned for its cost-effectiveness and straightforward application process. Bank approval is swift, and the process is streamlined by its minimal documentation requirements and exemption from credit history scrutiny.
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Obtaining a loan against a fixed deposit
There exist three avenues for securing a fixed deposit loan:
Demand Loan:
Demand loans depart from conventional fixed repayment terms, allowing borrowers to settle the debt at their convenience, though before the stipulated maturity date. Repayment can be accomplished in full or through instalments, offering a level of adaptability.
Overdraft (OD):
Often preferred by many, banks frequently grant an overdraft facility against fixed deposits. Here, the lender approves a credit limit, typically ranging from 70% to 95% of the deposited amount, although certain institutions might extend even higher limits. This flexible credit can be withdrawn in part or entirely as required, easing financial strain. Borrowers are solely charged interest on the withdrawn amount, not on the entire sanctioned sum.
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Credit Card-based Loan:
The credit card option for fixed deposit loans provides an accessible means of accessing funds in emergencies. Similar to overdrafts, credit limits are linked to the fixed deposit, offering a ready source of credit whenever needed.
The advantages of a fixed deposit-based loan extend beyond its accessibility:
Swift Disbursal: The application and approval process for these loans are remarkably swift, making it an ideal choice during times of urgency.
Minimal Documentation: The paperwork required for obtaining such loans is considerably reduced, easing the process further.
Competitive Interest Rates: One of the most appealing aspects is the significantly lower interest rates compared to personal or gold loans, making it a cost-efficient borrowing option.
