Monday, 10 November 2014

Fund your loan with a loan against fixed deposit

At some point in time everyone needs cash and most of the times we avail a loan or sell our assets. Especially in times of urgent cash most of us do not realize that, we could still have that last bit of cash left in us, only if we looked for it.
Have you ever tried availing loan against your fixed deposit?
Yes, banks offer loan against your fixed deposit. The surprise just does not stop here, you also get a range of benefits compared to the traditional loans.



Cheaper interest rates
Loans against fixed deposits are way cheaper. In fact the interest rates are less than half of what you pay when compared to your personal loans. For loans against fixed deposits, the interest rate is mostly just a percent or 2 higher than the interest earned on your FD. For example, if your FD offers you 8% percent interest on maturity then you pay just 9 percent for the loan borrowed on your fixed deposit.

Pay only for the loan amount and the tenure of the loan
In simple words if you availed a loan amount of 9,000 against your fixed deposit of 10,000 and if you repay the amount in 10 days, then you pay the interest only for the ten days against a loan of 9,000 rupees. Therefore, interest is charged only on the amount borrowed and for the tenure of the borrowed amount.

Get up to 90% of sum assured
In most cases when we avail for a loan, we are always short changed. However in case of loans against fixed deposits there is a possibility of getting up to 90% of the loan amount simply because the loan amount is based on the value of your fixed deposit.
As always do not just go with flow, most importantly find the purpose of the loan. Go for loan against FD mostly in case of a temporary cash crunch and if you are sure you will get some liquidity in the near future.

No repayment charges
Unlike your home loan or personal loans, there are no charges in case you pay off your loan against fixed deposits earlier than the stipulated period. So in case you did get some extra cash or the extra liquidity you need not think twice before repaying your loan on the FD.

Instant Loan disbursement
No need to fill lengthy forms, go through elaborate procedures or worry about your CIBIL score. Loans against fixed deposits are easily available as the lender knows the maximum amount to be disbursed by looking at your fixed deposit amount and the tenure. However, going forward if you are not paying your loan on time, it will surely reflect on your credit score and might affect your future loan eligibility.

Processing fees is almost next to nothing
Almost every loan starts off with the dreaded processing fees. It is all fine once the loan is disbursed. If your loan is rejected or later you realized that the loan is not as per your terms and conditions then your processing fees in most cases is as good as gone. However, in case of loans against fixed deposits there is only some marginal fees and the banks might even waiver it off in case you are a regular customer.

Loan tenure is till the FD maturity date
You can actually fix the tenure of the loan amount based on your repayment capacity and in most cases you can choose the tenure for as long as the fixed deposit's maturity date. So in case you have gone for those long and steady fixed deposit plans, then you can avail a long tenure and also enjoy the low interest on loans against fixed deposits.

Take a moment of thought
However, with all the strings and bells attached, loan against fixed deposits must be taken with a pinch of salt. End of the day you are the best person who knows about your financial situation. Do not just go with the flow and opt for a loan. Loan against fixed deposit is best in cases where the liquidity crunch is for a short period of time and you are almost pretty much assured of getting cash in the near future.

In case your loan requirement is for a smaller amount, you can again opt for loans against fixed deposit while you can continue to earn interest on the balance amount of fixed deposit. However once you have availed a loan you cannot go for partial withdrawals of your fixed deposit or close the fixed deposit. You will have to continue your fixed deposit till the maturity date or go for the prepayment of the loan and there are no tax benefits as well.

Final Opinion

In case you need some fast cash without much fuss, then fixed deposits are one of the best sources for loans available. End of the day it is your own money and not only do you get interest on the balance amount but it does help to raise your own money.