Wednesday, 11 March 2015

Why Loans Against a Fixed Deposit is a Good Idea?

Most of our excess money usually goes into one financial product and that is the fixed deposit. The fixed deposit is one of the most popular financial investments for two simple reasons. One is the high rate of returns and the other is guaranteed returns. Not to forget the ease with each you can use the fixed deposit as an investment unlike other financial investments which surely requires some understanding of basic jargon’s or at least some sort of advice from someone. 

However, in times of money shortage, we are hardly reminded about our fixed deposits. We invariably look at every other possible source to borrow money. Why do we not even think of availing a loan from the fixed deposit? Agreed, the money was for saving but you saved the money for troubled times right? So why hesitate?  The best part is you are not taking the burden of a loan from outside. So how do you avail a loan against fixed deposit?

Based on the amount of fixed deposit you have, you will be given the loan as an overdraft against your deposited amount. This not like breaking your fixed deposit and halve all the benefits. You will still be eligible for all the benefits once you have paid the fixed deposit loan.

What is the loan amount you can expect from your fixed deposit?

Usually you can easily ask for a loan amount of at least 70-90% of the fixed deposit amount. However, banks even offer more than the stipulated amount. In short there is no particular limit or standard rule on the amount of loan you can avail from your fixed deposit. It depends on the bank you have your fixed deposit.

Interest rates for loans against fixed deposit

Unlike personal loan, loans against fixed deposit have lesser interest rates of just 2 to 3 percent above the fixed deposit interest rate offered to you. The interest again depends on the bank and there is no standard interest rate but surely the interest rates are way less than personal loans.

What are the charges?

The best part is there no processing charges in most cases unlike home and personal loans. Even if they are applicable it would be very marginal compared to the usual processing charges compared to other types of loans.

Loan tenure and repayment

The loan tenure depends on the time of fixed deposit you have chosen. For eg: If your fixed deposit has a period of 10 years remaining, then you can repay the loan in ten years. The repayment would be like any other loan where you pay in monthly EMI’s on a regular basis or as decided by the lender.

Prepayment charges

There are no penalties for the repaying the loan earlier than the actual loan tenure in most of the cases.

Final decision

Loan against fixed deposit is simply the easiest and most convenient way of availing a loan when compared to personal loans in which the interest rates are very high and in some cases can go up to 30% p.a. The best part is you still get interest for the amount on your fixed deposit. Just remember that you once you avail a loan against your fixed deposit you cannot end or split the fixed deposit. Lastly, you cannot claim income tax deduction for the repayment of your loan against fixed deposit.