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.
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.
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.
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.
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
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.