Is it worth taking a loan against FD?

Financial Impacts of taking Loan against FD? Is it worth it?

Loan against FDs. Is it worth it

Because of their safe and secure nature, fixed deposits (FDs) are still favoured by many individuals in India and are considered one of the most popular financial instruments. The prospect of taking a loan against your FD only increases the investment's attractiveness. Rather than risking your investment during an emergency, you can take out a loan against your FDs. Banks offer this option to investors instead of prematurely breaking the deposit. 

Also Read: FAQs About Fixed Deposits

When comparing Personal Loans to loans against FDs, industry experts indicate that if you want a better lending rate, go for a loan against FD. You can continue to earn interest on your FDs even if you take a loan against them. Personal loans, on the other hand, often have higher interest rates ranging from 14 per cent to 30 per cent each year. 

It's important to understand that a loan against an FDs is not the same as a bank's overdraft. Overdrafts are when a bank permits a customer to withdraw an excessive amount of money from their account, up to a specific limit. The overdraft credit limit can also fluctuate from time to time, depending on the customer's profile and credit score, among other factors. Overdrafts have higher interest rates than loans.

Benefits of getting a loan against FDs:

  • There's no need to break the FD
  • Interest rates are lower
  • Can be obtained on any type of FDs (domestic and NRI FDs)
  • Documentation is kept to a bare minimum
  • There are no processing costs

Things to note before taking a loan against FDs:

The loan amount granted by the bank is based on the total value of FD. It can be anywhere from 70 per cent to 95 per cent of the entire FD value. SBI, for example, has imposed a cap of 90 per cent of the value of the FD. If you have an FD of Rs 10 lakh with the bank, you will be eligible for a loan of Rs 9 lakh. 

The interest rate charged by banks for a loan against FD is typically 1 to 2.5 per cent higher than the interest paid on the deposit by the bank. The interest rate, on the other hand, varies from bank to bank.

Unlike housing and personal loans, banks normally do not charge processing fees on loans against FDs. This also differs from one bank to the next.

There is no separate tenure for the loan against FDs. The maximum loan term is determined by the length of the FD. The payment mechanism is similar to that of home loans. The EMIs are paid regularly by the borrower or as determined by the lender.

Banks typically offer flexible repayment arrangements for loans secured against FDs. It does, however, come with one condition: the loan term must not exceed the lifetime of the FD. The loan can be repaid in a lump sum or in instalments.

In most cases, banks do not incur any penalties or additional fees if the loan against an FD is foreclosed.


Taking a loan against a fixed deposit is a less cumbersome process, and it does not include any additional charges as well. Customers can choose this option instead of closing the FD to meet an urgent financial need.


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