Is it better to borrow a loan against fixed deposit?

Posted by Nidhi on December 17th, 2020

The need for funds can arise anytime whether it is for a planned expense or an unplanned one. Though you depend on your savings to fund your expenses, sometimes, your savings might not be sufficient and you might need to resort to loans.

When it comes to loans, there are various loans in the market. For funding your personal expenses personal loans are available but these loans come at high-interest rates. Another source of the loan, which you can explore, is against fixed deposits. 

Fixed deposits are investment avenues which give you fixed interest on your investments. When you invest in a scheme of fixed deposit online, you choose the deposit amount and the investment period and the FD rate depends on the tenure that you select. During the deposit tenure, you are not allowed to withdraw your deposit and if you do so, there would be a penalty which would reduce your interest income. So, if you need funds, you can avail of a loan against your fixed deposit online.

How to avail a loan against FD?

Loans against fixed deposits are allowed by banks and NBFCs. You can pledge your deposit with the lender and avail the loan. The lender might issue you a loan ranging from 50% to 75% of the fixed deposit amount. When you repay the loan, you get the ownership of the fixed deposit back. On the other hand, if you do not repay the loan, the lender utilizes the maturity proceeds of your deposit to get the funds back.

Is it better to borrow a loan against fixed deposits?

The benefits of borrowing a loan against your fixed deposits are as follows –

• The interest rate on the loan is low compared to a personal loan as the loan is secured against the FD. This makes the loan affordable

• You can easily avail a loan against fixed deposit online as there are many banks and financial institutions offering this loan

• The funds received from the loan can be used for any personal need that you have without restrictions

• You get flexible repayment tenures to repay the loan affordably

However, the loan has some shortcomings too which you should know about. These shortcomings include the following –

• The loan amount depends on the value of your deposit. You are offered a fraction of the deposit’s value as a loan. Thus, the loan amount is restricted and might not prove sufficient to fund your requirements

• Till you repay the loan the fixed deposit would remain pledged with the lender. You would not be able to use the deposit for your needs.

What you should do?

Though loans against fixed deposits are easy to avail and have low-interest rates, their amounts are restricted. So, assess your financial needs and then make a call. You can opt for personal loans instead which are issued instantly, do not require you to pledge your FDs and allow higher loan amounts. Though the interest rate is on the higher side, you can pay off the loan early and save on the interest cost. So, understand your financial requirements and if your FD is sufficient to offer you a loan, go for a loan against it, else, opt for personal loans.

Whatever you do, invest in a fixed deposit scheme with best FD rate for guaranteed returns. To find the best FD rate you can choose ETMONEY’s best investment website. ETMONEY’s best investment website not only helps you find a deposit scheme with the best FD rate, it also offers you loans for your financial needs. So, come to ETMONEY’s best investment website and opt for FDs with the best FD rate or loans as per your financial requirements.