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Can you really make money work for you? On paper, this sounds like a dream that is too good to be true. In reality, however, you can absolutely put your idle funds to good use.
When struck with a sudden financial crisis, most of us end up liquidating our assets like fixed deposits. While this move can easily help you overcome a rainy day, it also trumps the purpose of your investment. So, what is the better alternative to liquidating your FD?Pledging it as collateral and availing of a quick loan!
This type of loan doesn’t have any processing charges and allows convenient repayments either in monthly instalments or a lump sum. The interest charged on such loans are also highly competitive and higher than the fixed deposit interest rates. With the investment intact, you can also continue to earn consistent returns on your deposit!
Now, there are primarily two ways you can borrow a loan against FD –
- Take a regular loan
- Go for an overdraft (OD) facility
However, before you go ahead, take note of the points mentioned below.
1. Loan eligibility
One of the first things to consider is if you are eligible for the financial product or not. This loan facility is accessible to anyone holding a fixed deposit, whether alone or jointly. Your profession, monthly salary, and credit profile are secondary criteria here and only considered if you apply for the overdraft facility. But if the deposit is in a minor’s name or was created for tax saving purposes, it doesn’t qualify for the loan facility.
2. Borrowing limits
Loans taken against fixed deposits have a defined credit limit. The loan amount you can borrow depends directly on the sum deposited in your account. Typically, banks only sanction 90% to 95% of the FD amount as loan.
Meanwhile, the cap on loan amount is usually set at around 90% for the overdraft loan facility. How does this work? Well, suppose you have Rs. 5 lakhs deposited in your FD account. In such a case, your bank can offer you a maximum overdraft limit of up to Rs. 45,000, and you cannot withdraw over and above this limit. Besides, you’ll only be charged interest on the amount you withdraw from the account.
3. Fixed deposit lien
Like any other loan facility, loans taken against fixed depositsalso come with a cost. When you use the deposit to back a loan, your bank will generate a lien on it. After which, your bank will get an automatic claim on the deposited amount till the loan tenure is over. The loan is also secured and comes at a lower fixed deposit interest rate because of the lien.
So if you default on the loan payments, the bank will use the FD to claim the borrowed funds. But once you have repaid the debt in full, the lien will be removed automatically.
4. Loan tenure
Finally, you should pay special attention to the loan tenure. This is because a loan against FD doesn’t come along with a separate tenure. The maximum tenure you can get on a loan is the same as the tenure of your FD.
Summing Up
With these points in mind, you can easily apply for a loan against FD and avail of quick funds to finance your personal needs. If you are looking for a safe avenue to invest your surplus funds in, IndusInd Bank’s fixed deposit facility offers a slew of benefits you shouldn’t miss. Click here to know more.
Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.
