Introduction
The process of getting a loan can be a daunting task, especially if not properly guided. While there are various types of loans to avail, one lesser-known option is a loan against fixed deposits. This form of borrowing offers a number of conveniences and benefits over traditional loans, making it a worthy consideration for anyone in dire need of funds. The idea of a loan against securities is to use your investment in a fixed deposit as collateral instead of risking any other significant assets such as a home or a car.
What is Loan Against Securities?
Loan against securities is a type of loan where the borrower pledges securities such as fixed deposits, bonds, mutual funds, etc., as collateral to access instant funds. This loan type is typically availed when there’s an immediate need for financing and the borrower prefers not to liquidate their investments. Most financial institutions offer loans against securities within a preset percentage of the pledged securities’ value.
What is a Loan Against Fixed Deposit?
A loan against fixed deposit is one example of a loan against securities where the borrower’s fixed deposit certificate serves as collateral for the loan. This secured loan provides a hassle-free way to access funds while continuing to earn interest on the fixed deposit. Through this mechanism, the borrower can procure up to 90% of their fixed deposit value at flexible repayment terms.
Why Choose a Loan Against Fixed Deposits?
1. Keep Your Investment Intact
One of the most significant advantages of availing a loan against a fixed deposit is the ability to keep your investment intact. By leveraging your fixed deposit as collateral, you continue to earn interest on it throughout the loan tenure. So, while you get the finance needed, the fixed deposit stays active, earning you returns.
2. Lower Interest Rates
Compared to other types of loans, the interest charged on a loan against a fixed deposit is typically lower. This is because the loan is secured against your fixed deposit, reducing the risk for the lender. The interest rate on a loan against fixed deposits generally tends to be only a few percentage points higher than the fixed deposit interest rate.
3. Quick Loan Approval and Disbursal
Since the loan is backed by collateral, the approval process is typically swift. The documentation and verification process is simplified, with no elaborate credit score checks since your fixed deposit guarantees the loan repayment.
4. Less Rigorous Eligibility Criteria
A loan against fixed deposit does not demand stringent eligibility requirements. If you have a fixed deposit with the financial institution, you can feasibly apply for the loan. This loan doesn’t take your credit history, employment status, or income into consideration, which makes it ideal for those with low credit scores or irregular income.
5. Flexibility in Repayment
Lastly, loans against fixed deposits offer a high degree of flexibility in terms of repayment. Some financial institutions offer an overdraft facility, allowing you to withdraw funds as and when needed and pay interest only on the utilized amount. Moreover, the loan tenure can be aligned with the fixed deposit duration, making it convenient for repayments.
Conclusion
Opting for a loan against your fixed deposit offers several benefits from preserving your investment, comparatively lower interest rates, to speedy approvals and flexible repayment options. However, it’s crucial to understand the implications of defaulting on the loan, leading to the loss of a time-secured investment. Always consider your repayment capacity and the associated borrowing costs before opting for any loan.
A loan against a fixed deposit serves as a practical option during financial emergencies, ensuring you have the funds when you need them while simultaneously harnessing the benefits of your investment. Hence, when faced with a sudden need for liquidity, a loan against your fixed deposit may turn out to be a more favorable option than most traditional loans.
