Fixed deposits are noble financial instruments to invest in if you have a lump sum of idle money in your hand. Alongside its safe custody, the banks also offer a high rate of interest on it. The reason behind its popularity is that the returns are guaranteed in any case. But what furbelows the investment in fixed deposits is the fact that it can also be used to avail loans, and that too with great ease.
Fixed deposits allow customers to get loans without any credit score. Loans granted against fixed deposits are actually in the form of an ‘overdraft’. A bank uses a fixed deposit as the collateral to grant loans. However, the account holder will not lose the benefits of the deposit anyhow. The individual doesn’t need to break the fixed deposit in order to complete the loan approval process. Moreover, the borrower will continue to get the righteous interest that the fixed deposit offers. Generally, banks grant 70% to 90% of the value of the deposit as a loan. For example, if your fixed deposit is of 1,00,000 then you can avail a loan amount of 70,000 to 90,000 (varies with different banks)
Since the account holder has already all his details with the bank, he/she don’t need to go through the tedious documentation process. Loans against FD usually requires considerably fewer formalities compared to other ways of availing loans.
An individual who avails loan against fixed deposit is subjected to a paltry interest rate. To be more specific, the banks levy only 2-3% more interest than the interest they are paying to the customer on the fixed deposit.
Most of the banks do not charge any processing fee on the loans being availed against fixed deposit and not even a foreclosure fee.
Loan against fixed deposit offers multiple benefits when compared to the other forms of loan. Low-interest rate, the absence of processing fee and fewer paper works are always desirable in any financial transaction. Added benefits like the continuation of the fixed deposit’s interest and no extra collateral make this the best option to go with.