Loan against FD: Interest rates, documents, offering banks – ICICI, HDFC, SBI

 

When you have an urgent financial requirement for your business, a loan against FD can be a go-to choice. This article takes a closer look at what a loan against FD is, its benefits, examples, and disadvantages.

What is a loan against FD?

A loan against FD is a type of collateral loan where FD or fixed deposit acts as collateral for your loan. The loan amount is determined by the amount of the fixed deposit. Generally, one can avail of a loan of up to 90-95% of the fixed deposit amount. Such loans can be availed in two types i.e. demand loan or overdraft facility.

The main advantage of taking a loan against an FD is that it allows you to get funds without breaking a fixed deposit prematurely. This means they can continue to earn interest on their FD while also having access to additional funds through the loan.

Benefits of a loan against FD

Loan against FD can turn out to be beneficial in many ways. Here are some of the main benefits.

• Quick access funds: Since FD acts as collateral, it gives quick access to liquid funds without actually liquidating FD or any of the other investments. As a result, you can still achieve your financial goals and raise funds for business needs.
• Lower interest rates: A loan against FD generally has a lower interest rate of interest compared to unsecured loans. This is because the FD serves as collateral.
• Minimal paperwork: A loan against FD involves lesser documentation and paperwork. Hence, it is hassle-free and convenient.
• Quick approval: The loan approval process for an FD-secured loan is usually faster and simpler compared to other loan types. As a result, the loan is approved and disbursed quickly. Therefore, it can come in handy in case of urgent need of money.
• No need to break the FD: As mentioned earlier, for a loan against FD, you do not need to break your FD. Also, you continue to gain interest on your fixed deposit while you have access to additional funds through loan.
• No CIBIL score checking: Collateral improves the creditworthiness of the applicant as a bank or financial institute can liquidate the FD if you default. Hence, banks generally do not check CIBIL scores or credit scores while approving a loan against FD. Obtaining a loan against FD and repaying it on time, can be a good way of improving your CIBIL score, in case it is not up to the mark.
• No restrictions on usage: Like a working capital loan, the loan against FD can be used for varied financial needs such as purchase of raw materials, buying machinery, meeting operational expenses and so on.
• No or lower processing charges: Since documentation and processing work are lesser, the processing charges are minimal. Many banks do not even charge processing fees.

Loan against FD examples and offering banks

Here are some of the examples of loans against FD offered by different banks.

	Features	Interest rate
SBI Loan against FD	Loan of up to 95% of the value Both demand loan and overdraft facilities are available No processing charges No prepayment penalties Min amount of Loan (For Online Overdraft against Fixed Deposit):  ₹5000 Max amount of Loan (For Online Overdraft against Fixed Deposit): ₹ 5 Crore Security Lien on underlying Time Deposit	1% above the relative time deposit rate
HDFC loan against FD	Up to 90% of overdraft on your FD A minimum FD amount of ₹25,000 for a minimum tenure of 6 months 1 day is required Interest is to be paid only on the withdrawn amount	2% above the fixed deposit rate
ICICI Bank loan against FD	Overdraft facility of up to ₹10 crore Facility available for various types of businesses including companies, partnership firms, limited liability partnership and Hindu undivided f family (HUF) Overdraft against self-fixed deposit (Up to 7 FDs) Limit up to 90% of the FD value No processing fee & foreclosure charges.	–
Bank of Baroda loan against FD	Up to 90% of the FD amount No penalty for pre-payment No credit score checks Minimal paperwork	1-2% higher than the current interest rates
Yes Bank loan against FD	Up to 90% of the amount in your account Minimal documentation Quick processing	0.5% to 2% higher than the FD interest rate

Note: It is important to note that the bank’s terms and conditions for loans change periodically. Therefore, it is best to check features and rates of interest with the respective bank before applying.

Documents required for loan against FD

As mentioned earlier, loan against FD does not require much documentation.

All you require is the receipt of existing fixed deposit.

Loan against fixed deposit: disadvantages

While a loan against FD has multiple advantages, it has a few disadvantages too. One needs to consider the disadvantages before applying for a loan.

• Limited loan amount: As mentioned above, the loan amount of loan against FD typically ranges between 90-95% of your FD amount. Your loan amount is limited to the amount of your fixed deposit. You may or may not be able to meet your business needs with it.
• Collateral at risk: When you promise FD as collateral, you give rights to the bank to liquidate it in case you fail to repay. In other words, if you fail to make a loan repayment, you will lose your assets too.
• Interest cost: While the interest rates on loans against FDs are generally lower than those of unsecured loans, you will still incur interest expenses. This can be a disadvantage if you were originally planning to earn interest on your FD without any deductions.
• Loan tenure: Generally, your loan tenure is associated with the tenure of FD. Meaning if your FD is to mature in 12 months, your loan tenure would be 12 months or less.

Concluding thoughts

Before applying for a loan against FD, you need to consider various factors. It may or may not be the right choice for you to raise funds. Firstly, your financial requirement should be up to the amount of your FD to avail of this type of this type of loan. Alternatively, there is a risk associated with losing your investment in case of non-payment. On the other hand, in case your CIBIL score is low, and you need to have access to funds urgently, it can turn out to be a choice without actually liquidating your investment.