How to Apply for a Loan Against Your Fixed Deposit

Need quick cash but do not want to break your fixed deposit? A loan against FD is one of the smartest financial moves you can make. It lets you borrow money using your FD as collateral while your deposit continues to earn interest. This guide explains how to apply for a loan against your FD, the benefits, interest rates, and everything else you need to know.

What Is a Loan Against FD?

A loan against fixed deposit is a secured loan where your FD serves as collateral. The bank lends you a percentage of your FD value (usually 75-90%) at an interest rate that is typically 1-2% higher than your FD rate. Your FD remains intact and continues earning interest, making this a cost-effective borrowing option.

Why Choose a Loan Against FD?

• Low Interest Rate: Since the loan is secured against your FD, the interest rate is much lower than personal loans or credit cards — typically 1-2% above your FD rate.
• Quick Disbursal: Most banks process the loan within hours, sometimes instantly through net banking.
• No Credit Score Check: Since your FD is the collateral, your credit score does not matter.
• FD Continues Earning: Your fixed deposit keeps earning interest even while you have an outstanding loan.
• Minimal Documentation: No income proof, salary slips, or lengthy paperwork required.
• Flexible Repayment: Many banks offer overdraft-style facilities where you pay interest only on the amount used.

How Much Can You Borrow?

Banks typically lend 75% to 90% of your FD value. For example:

• If your FD is worth Rs 5 lakh, you can borrow Rs 3.75 lakh to Rs 4.50 lakh.
• For FDs in foreign currency, the loan-to-value ratio may be slightly different.
• Tax-saving FDs (5-year lock-in) are generally not eligible for loans against FD.

How to Apply for a Loan Against FD Online

Step 1: Log In to Your Net Banking

Access your bank’s internet banking portal or mobile app. Look for options like “Loan Against FD,” “Overdraft Against FD,” or “FD-Backed Loan” in the loans section.

Step 2: Select Your FD

Choose the FD against which you want to take the loan. The system will show you the maximum loan amount available based on the FD value.

Step 3: Enter the Loan Amount

Enter the amount you wish to borrow, up to the maximum limit. You do not have to borrow the full eligible amount — borrow only what you need to minimize interest costs.

Step 4: Review Terms

Check the interest rate, tenure (usually aligned with your FD tenure), and any processing fees. Most banks charge zero processing fees for loans against FD.

Step 5: Confirm and Get the Loan

Authenticate with OTP and confirm. The loan amount is credited to your savings account almost instantly. In many banks, this entire process takes less than 5 minutes.

How to Apply at the Branch

1. Visit your bank branch with your FD receipt.
2. Carry ID proof and address proof.
3. Fill out the loan against FD application form.
4. Submit the form along with the FD receipt (the bank will mark a lien on it).
5. The loan amount is typically disbursed the same day or the next working day.

Interest Rate Comparison

Here is how a loan against FD compares with other borrowing options:

• Loan Against FD: 7.5-9% (FD rate + 1-2%)
• Personal Loan: 10.5-24%
• Credit Card EMI: 13-42%
• Gold Loan: 7-15%

Clearly, a loan against FD is one of the cheapest borrowing options available.

Repayment Options

• EMI-Based: Pay fixed monthly instalments of principal and interest.
• Overdraft: Withdraw and repay as needed; pay interest only on the utilized amount.
• Bullet Repayment: Repay the entire loan at the end of the tenure or when the FD matures.

What Happens If You Cannot Repay?

If you are unable to repay the loan, the bank will adjust the outstanding amount from your FD at maturity. The remaining balance (if any) will be credited to your savings account. This makes loans against FD virtually risk-free for the bank, which is why the interest rates are so low.

Important Points to Remember

• The loan tenure cannot exceed the remaining tenure of the FD.
• Tax-saving FDs are not eligible for loans.
• If you have a joint FD, all holders may need to sign the loan application.
• The interest paid on the loan is not tax-deductible unless used for business purposes.

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