Jan 29

Is Loan Against FD Better than a Personal Loan

We all might have limited cash in hand at some point of time and prefer to take loan for some reason but while choosing to take personal loans we also have to pay higher rate of interest as well which makes the situation more tensed. Alternatively they can use their fixed deposit to obtain loan in the form of a term loan or overdraft. Also, the monthly repayment is low, which thus makes loan against FD route even cheaper.

Loan against FDs

A loan against a fixed deposit is a financing option where the individuals can apply for a loan against their available FD amount. The interest rate on this loan will be much cheaper (~5% lower) than interest on personal loan. The entire process is not difficult and moreover it doesn’t involve any additional charges as well.

Interest Rate:

The rate on loan against FDs will be slightly higher by 1% to 3% as compared to the latest interest that you get on your deposits from your bank. For example, if you are getting an interest rate of 7% on your fixed deposit, then interest rate for the loan would be 8% to 10%.


The risk involved in taking personal loan is much higher as compared to a loan against FD. The loan against your FD is secured; also the rate of interest is much lower as compared to taking personal loan. The personal loans are relatively considered as unsecured loans and moreover the interest rates are also higher. The interest rate for a personal loan can be between 12 – 24 percent which is generally not advisable.

Note: In case, you fail to repay the loan on time, your fixed deposit account will be immediately closed and adjusted against the loan and moreover, your credit score can be negatively affected.


While seeking a loan against FD, you may need to present the following viz. deposit receipt, lien letter, overdraft agreement, demand promissory note, signed receipt, and the duly filled application form with your sign on it. However, most Banks have standardized forms for the above requirements. Taking personal loan from the various finance companies can also be done with easy documentation and after filling the application form online, the process takes 24-72 hours. Whereas, personal loan from traditional Banks may take several weeks.

Application Process

You need to stay physically present at the bank to get a loan against fixed deposit and have to fill the application form manually at the bank. Though getting personal loans from digital lenders do not involve much of these steps and you can easily fill the application online and your request will subsequently get processed over the following 24-72 hours.

So both personal loan and loan against FD have their own advantages and disadvantages. It totally depends upon you as what is your current situation and what kind of loan you want. If you already have fixed deposit account and want loan for smaller amount then loan against fixed deposit would be an ideal option but in case, you are looking to fund a bigger purchase and need the amount within 1-3 days, then personal loans would be a better option. Also, if you have created the savings corpus for some specific purpose and thus do not want to touch the FD then you can avail personal loan to meet any sudden requirement as the compulsion of monthly EMI would force you to repay the personal loan on time.

Many a times, personal loans also work better than a loan against fixed deposit but it depends on the specific amount and other factors. So, after considering your requirements, finalize what kind of loan you want to opt for. A customer should act wisely and take the right decision at the required time.

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