How to Use Fixed Deposits as Collateral for Loans

Fixed Deposits (FDs) are popular investment options because they offer guaranteed returns over a fixed period. What many people don’t know is that these FDs can also be used as collateral for loans. This means you can borrow money against your FD without breaking it. In this guide, we will explain how to use fixed deposits as collateral for loans. We would cover the basics, the process, the benefits, and provide answers to some common questions.

What is FD as Collateral?

FD as collateral means using your fixed deposit as security to get a loan. Instead of breaking the FD and losing interest, you can keep the FD intact and borrow money from the bank. This is also known as a secured loan because the loan is backed by the FD.

How Does FD Collateral Work?

1. Loan Against FD: When you need funds urgently, you can approach your bank and ask for a loan against your FD. The bank will hold your FD as security and grant you a loan.
2. Loan Amount: Generally, banks offer up to 90% of the FD amount as a loan.
3. Interest Rate: The interest rate on a loan against FD is usually lower than personal loans or credit card loans.
4. Loan Tenure: The tenure of the loan is usually the same as the remaining tenure of the FD. If your FD is for 5 years and 2 years are remaining, the loan tenure will be 2 years.
5. Repayment: You can repay the loan in instalments or as a lump sum.

Benefits of Using FD as Collateral

Quick and Easy Process

Getting a loan against your fixed deposit is quick and simple. Since the bank already holds your FD, there is minimal paperwork and the loan approval is fast.

Lower Interest Rates

Loans against FD have lower interest rates compared to unsecured loans like personal loans or credit cards. This makes it a cost-effective option for borrowing.

No Impact on FD

When you take a loan against your FD, your FD remains intact and continues to earn interest.

Flexible Repayment Options

Banks offer flexible repayment options for loans against FD. You can choose to repay in easy instalments or one go.

Maintains Credit Score

Since the loan against FD is a secured loan, it has a positive impact on your credit score if repaid on time.

Also Read: What Is Collateral on a Loan and When Do You Need It?

How to Get a Loan Against FD

Step 1: Check Eligibility

First, ensure that your FD is eligible for a loan. Most banks offer loans against their own FDs. Check the terms and conditions with your bank.

Step 2: Approach the Bank

Visit your bank branch or use online banking to apply for a loan against your FD. Provide necessary details, like your FD account number and personal identification.

Step 3: Complete the Application

Fill out the loan application form with all the required details.

Step 4: Loan Approval

The bank will process your application and approve the loan based on the value of your FD.

Step 5: Disbursement of Funds

Once approved, the loan amount will be credited to your bank account.

Airtel Finance and FD Collateral

Airtel Finance offers competitive rates and quick processing for loans against FDs. If you have an FD with Airtel Finance, you can easily apply for a loan online or through their customer service. If you don’t have one, open an FD account right now using the Airtel Thanks App. Get attractive fixed deposit interest rates and flexible repayment options.

Also Read: How to Get a Personal Loan Without Security

Conclusion

Using fixed deposits as collateral for loans is a smart way to meet urgent financial needs without breaking your FD. It offers lower interest rates, quick processing, and flexible repayment options. However, always make sure you understand the terms and conditions before applying for a loan against your FD.

FAQs

1. Can I get a loan against any fixed deposit?

Yes, most banks offer loans against their own fixed deposits. Check with your bank for specific terms and conditions.

2. How much loan can I get against my FD?

You can usually get up to 90% of the FD amount as a loan.

3. What happens if I default on the loan?

If you default on the loan, the bank has the right to liquidate your FD to recover the loan amount.

4. Can I use the loan amount for any purpose?

Yes, there are no restrictions on how you use the loan amount. You can use it for any personal or business need.