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Loan on FD: Fixed Deposit (FD) is one of the most popular and safe investment options in India. But when financial needs, there are two main options: breaking FD or taking a loan on it. Before taking this decision, it is important to understand its advantages and risk. In this article, we will explain in detail about the advantages, risk and careful things of taking loans on fixed deposits.
What is loan on fixed deposits?
Loan is a safe loan on fixed deposits, in which you can borrow money from the bank by pledging your FD. The loan amount usually ranges from 70% to 90% of the value of FD, which depends on the policies of the bank. The interest rate of this loan is 1-2% higher than the interest rate of FD, which is much lower than personal loan.
Benefits: Why take a loan on FD?
No need to break FD: By taking a loan on FD, your investment remains intact and you can also earn interest till maturity. This does not affect your long -term financial plan.
Low interest rate: The interest rate of loan on FD is much lower than the personal loan (10–15%), usually about 7-9%. This reduces the cost of loan.
Acute and average process: Since it is a safe loan, banks do not require income proof or credit score, which increases the loan acceptance.
Flexible repayment: Debt repayment can be done as overdraft or term loan. In overdraft, you can withdraw money as per your requirement and you only have to pay interest on the amount used.
No predetermination fine: Most banks do not charge any fee for early repayment of loans on FDs, which are beneficial compared to other loans.
Risk: What are the things to keep in mind?
Additional interest cost: Even though the interest rate on the loan is low, it is higher than the interest rate on FD. This can reduce your net return.
Risk of default: If you fail to repay the loan, the bank may recover the amount from your FD, which can destroy your investment.
Limited loan amount: The loan amount is limited to 90% of FD value, which may not be sufficient for large financial requirements.
No tax benefits: There is no tax benefit on breaking FD, but no tax benefits are available even after repaying the loan.
When to take a loan on FD?
Short -term financial requirement: If you need money for a few months and you are confident about repayment, then taking a loan on FD is the best option.
High interest rate FD: If your FD is booked at high interest rate, which is higher than the prevailing rates, it is better to take a loan rather than breaking it.
Maturity near: If FD maturity is near, it is fined for breaking and interest is also low, so taking loan is more beneficial.
When to break FD?
Long -term crisis: If you are not sure about the loan repayment, such as missing jobs or medical emergency, breaking FD can be more practical.
Low fine: If FD fine is low or maturity is far away, it may be better to break FD.
What caution?
Check your repayment capacity before taking a loan. The terms of the loan of each bank vary, such as loan amount, interest rate and repayment period. Take a decision keeping in mind your long -term financial goals.