A loan against a fixed deposit is one of the most efficient ways of tackling any crisis. Under this scheme, you keep your fixed deposit as collateral and avail loan against your fixed deposit amount. However, you get to retain complete ownership of your fixed deposit, which continues to earn interest. You can easily apply for a loan against a fixed deposit and repay the principal amount and interest within the stipulated period without your fixed deposit amount being affected.
There are several reasons why people prefer taking a loan against a fixed deposit, and here are some of them:
Minimum documents required
Unlike most other loans where you have to submit several documents and complete various formalities, availing a loan against a fixed deposit is easier. You need to take the loan from the same institution where your fixed deposit is. Thus, the documents required are already submitted to the institution while opening an fd account, and you need not do it again. All you need to do is submit a loan application form and your fixed deposit account details. Thus, keeping your fixed deposit as collateral lets, you avail of hassle-free loans with minimum paperwork.
Easy eligibility criteria
Loans against fixed deposits have easy eligibility criteria. The lender does not check your credit score, income, and other factors. It is easy to satisfy the requirements for a loan against fixed deposit than different kinds of loans. Since the lender institution provides you the loan against the amount you have as a fixed deposit, the former does not check other factors. Though the eligibility criteria to apply for a loan against a fixed deposit might vary across institutions, most have uniform rules. However, you should check the eligibility criteria in different institutions and select the best fd plan.
The interest rate charged on loan against a fixed deposit is exceptionally low. It varies from 1%-3% of the interest rate that the lender institution provides on your fixed deposit. It is, therefore, the cheapest loan and is highly preferred by people during an emergency. The borrower does not need to worry about high-interest rates on his loan as he already has other financial burdens. Thus, loans against fixed deposits are an efficient way of receiving money during an emergency.
Check – FD Interest Rates
Longer repayment tenure
Borrowed availing a loan against a fixed deposit get a more extended period to repay the loan. Thus, the headache of repaying the principal amount and interest within a short span is avoided through such loan schemes. However, it would be best if you remembered that a fixed deposit loan’s repayment tenure does not exceed your fixed deposit’s tenure.
Fixed deposits have been an efficient way of investing money, especially for senior citizens. Fixed deposits are not affected by market conditions, and the owner receives guaranteed returns on the principal amount. There are also several benefits of a fixed deposit, and keeping it as collateral is one of them. One should check the criteria of the loan, the repayment tenure, and other policies of the institution and finally apply for a loan to receive a lump-sum amount during emergencies.