Around Rs.3.29 lakh crore worth of unsecured loan quantum was disbursed in the last quarter of 2018. Personal loans are easily accessible and available, highly beneficial to meet immediate financial needs.

Even though one can avail a significant amount, the interest rates for such personal loans are higher compared to most other loans. As such, chances of defaulting on these loans are high also. 

To avoid such situations, one can consider opting for a loan against fixed deposit. Interest rates are also more affordable compared to those on unsecured loans. One can also opt for loans against the fixed deposit if they do not have a –

  • Satisfactory CIBIL score.
  • Other assets such as property.
  • Do not meet the required eligibility criteria for personal loans.

Application procedure

To avail a loan against fixed deposit, one needs to apply to the same financial institution with whom they have a fixed deposit account. Top financial institutions even offer online loan application facilities.

One can download the application form from their online website. However, you may have to visit the branch to submit the required documents along with the application form.

Accordingly, you should verify the application process as required by your lender.

Documentation required

One needs to submit the following documents while applying for a loan against fixed deposit –

  1. Receipt of fixed deposit.
  2. Duly filled in application form.
  3. ECS mandate.
  4. Cancelled cheque.
  5. Other related documents as required by a lender during loan processing.

An individual should note that the ECS mandate and cancelled cheque is required only for non-cumulative fixed deposits.

Eligibility criteria

The eligibility criteria to avail a loan against fixed deposit are straightforward and easy to meet. The following individuals with a fixed deposit account are eligible to apply for a loan –

  1. Resident and non-resident Indians.
  2. Organisations including partnership firms, sole proprietorship and group companies.
  3. Hindu undivided family.
  4. Trusts.
  5. Clubs and associations.

Other benefits of availing a loan against fixed deposits are –

  • The loan can be availed against domestic as well as NRI fixed deposits.
  • No processing fees required.
  • Furthermore, the loan amount can be repaid in instalments or as a lump sum.

One can also avail other features and benefits on their fixed deposits besides opting for a loan at attractive interest rates.

Features and benefits of fixed deposits

  1. Online application process – Most financial institutions offer hassle-free online application procedure for fixed deposits with nominal documentation. It enables customers to save valuable time. To apply online, one can visit the financial institution’s official website. Then they have to fill in and submit the online application form along with the required documents.
  2. Multiple deposits with several cheques –     Some financial institutions such as Bajaj Finance allow their customers to pay the amount for several fixed deposits with a single cheque. One can also opt for a different tenor period for separate deposit and fulfil their emergency finding needs by withdrawing cash from any of the deposits before time.
  3. Affordable minimum deposit amount – One can invest a minimum amount of around Rs.25,000 and earn interest on it and grow their wealth. In this way, an individual who has just started his or her career does not have to wait for a significant amount of time to accumulate a more considerable amount to invest as fixed deposit.
  4. Systematic deposit plan – Salaried employees can also avail a monthly investment option like systematic deposit plan for saving for retirement. Under this plan, they have to make a small deposit every month, which will be considered as a fixed deposit. The interest is calculated based on the interest rate on the date of the deposit. The depositor can choose the number of deposits that they want to carry out under this plan which can range from 6 to 48. Each of these deposits will have a maturity period of 12 – 60 months. This plan will enable you to increase your retirement savings over time.

Fixed deposits are one of the safest investment options that assure you significant returns throughout. You can also streamline your financial plan by calculating your interest beforehand using a fixed deposit calculator. Opting for a loan against fixed deposit will, therefore, provide you with the emergency funding that you need without putting a financial strain on you.