Loan against fixed deposit: What that is exactly
What's the story
A loan against fixed deposit is a financial tool that allows you to borrow money by pledging your fixed deposits as collateral. It is a simple and quick way to access funds without liquidating your deposits. This option is ideal for those who need immediate cash but don't want to break their long-term savings. Here's a guide to understanding this concept, its benefits, and how to use it effectively.
#1
Understanding the concept
A loan against fixed deposit works by allowing banks or financial institutions to lend you a percentage of your deposit's value. The interest rate on these loans is usually lower than personal loans since the loan is secured against your deposit. You continue earning interest on your fixed deposit while repaying the loan, making it a cost-effective option.
#2
Benefits of using fixed deposits
One of the major benefits of taking a loan against a fixed deposit is that you don't have to liquidate your investments. This means you can keep earning interest on your fixed deposit while getting access to funds. Also, the paperwork involved is minimal, and the processing time is quick, usually within a few hours or days.
#3
Interest rates and repayment terms
The interest rates on loans against fixed deposits are usually one to two percentage points higher than the FD's interest rate. Repayment terms can vary from one lender to another but usually range from six months to five years. It's important to check these terms before availing of the loan.
Tip 1
When to consider this option
Consider this option when you have an urgent need for cash but don't want to touch your savings. It's also suitable when other forms of credit may charge higher interest rates or require extensive documentation. However, ensure that you can comfortably meet the repayment obligations without straining your finances.