Banks offer loan against a fixed deposit as convenient way to cover financial requirements without closing your FD account. This is a way borrowers can get funds on better terms. In this guide we cover how you can apply for a loan against FD.
What Is a Loan Against a Fixed Deposit?
A loan against Fixed Deposit (FD) is a secured type of loan, your FD is considered as a collateral by the bank against the amount disbursed as loan which can be up to 90% of its value. Your FD continues to earn interest throughout the loan tenure.Once you repay the loan in full, the hold on your fixed deposit is removed, and you can withdraw or use the deposit normally.
How Does a Loan Against FD Work?
Once you apply, the bank puts a lien on your fixed deposit. This ensures that you do not withdraw the money until the loan is repaid. The money is then credited to your account, which happens on the same day.
The interest rate on the loan is usually 1% to 2% above the interest rate on your fixed deposit. You can repay the loan either in EMIs or in a lump sum payment at the end of the loan tenure. If you do not repay the loan, the bank has the right to adjust the fixed deposit amount.
Benefits of Taking a Loan Against Your Fixed Deposit
A loan against your fixed deposit offers a balance of liquidity, affordability, and convenience, making it a practical option for short-term funding needs without disrupting your savings plan.
1. No Loss of FD Returns
You continue earning interest on your deposit instead of losing returns due to premature withdrawal.
Read More: How Prepayments Affect Your Home Loan EMI: Insights from a Housing Loan Calculator
2. Lower Borrowing Cost
Being a secured loan, interest rates are significantly lower than unsecured borrowing options.
3. Fast Approval
Minimal documentation and no income verification enable quick processing and disbursal.
4. Flexible Repayment
You can repay via EMIs or bullet repayment, depending on your cash flow needs.
5. Simple Eligibility
Credit score checks are minimal or not required, improving access for a wide range of borrowers.
Eligibility Criteria
The eligibility criteria are as follows:
- You must have a valid fixed deposit in your name or jointly with others.
- The fixed deposit should not be already pledged for another loan.
- Some organizations require a minimum amount of the deposit.
- Consent from all account holders is required for joint fixed deposits.
- Income proof or credit checks are not required, making it easy for salaried, self-employed, retired, or student individuals to apply.
Documents Required
Most banks require minimal documentation:
- Identity proof and address proof
- Fixed deposit receipt or account details
- Loan application form
For existing customers, digital applications may not require any physical paperwork.
Read More: What are the criteria for obtaining a bank loan?
Interest Rates and Charges
Loans against fixed deposits carry lower interest rates than personal loans or credit cards. The rate is typically linked to your FD interest rate with a small additional margin.
For example, if your FD earns 6.5% annually, the loan interest rate may range between 7.5% and 8.5%. Processing fees are often nominal or waived, and prepayment penalties are usually not charged.
Loan Against Fixed Deposit for NRI Account Holders
NRIs can also avail loans against fixed deposits held in their NRI Account, including NRE and NRO deposits, subject to regulatory and institutional guidelines. This option is useful for NRIs who want liquidity without breaking long-term deposits or repatriating funds unnecessarily.The loan amount and repayment terms may affect whether funds can be repatriated outside India. These conditions vary based on deposit type and regulatory norms.
Step-by-Step Process to Get a Loan Against Your Fixed Deposit
Applying for a loan against your fixed deposit is usually quick and straightforward, especially if you already hold an active savings account or premium savings account with the institution. Most applications can be completed online with minimal documentation.
1. Step 1: Check Your Eligible Loan Amount
Most banks allow borrowing up to 75% to 90% of your FD value.
2. Step 2: Apply Through Digital or Offline Channels
Applications can be made online through net banking platforms, through your premium savings account, or in person at a branch.
3. Step 3: Submit the Application
Provide your FD details, loan amount requirement, and repayment preference.
4. Step 4: Lien Marking
The FD is marked as lien in favour of the bank, restricting premature withdrawal.
5. Step 5: Loan Disbursal
Once approved, the funds are credited directly to your account, often the same day.
Conclusion
A loan against your fixed deposit lets you access funds without breaking your investment or losing interest. With lower interest rates, fast approval, minimal documentation, and flexible repayment options through your premium savings account, it is ideal for meeting short-term financial needs. For NRIs, this facility offers convenient access to funds in India while keeping deposits intact and compliant with regulations.