Besides being tagged as excellent investment options, fixed deposit schemes can also double down as reliable credit lines, if and when there is a financial emergency to counter. While we would still recommend against making premature FD withdrawals as it cuts down on your profit-making options, getting a loan against a fixed deposit scheme is a more productive and sustainable resort.
How Loan against FD Works?
Fixed deposits (click here to know more about FD) are considered the safest forms of investment, which make them extremely desirable loan-availing entities. With lenders categorizing FD assets as credible collateral, it becomes easier to leverage the same for procuring a decent line of credit, precisely for covering financial emergencies.
Besides, a loan against FD is also attributed to decent interest rates which ensure that you need not pay a hefty sum during the loan tenure. Moreover, as compared to pricey credit card financing and personal loans with soaring interest rates, FD-centric loans are way more economical, easy to get approved for, and do not interfere with your existing investment module and corpus.
Benefits of Getting a Loan against FD
A sudden medical emergency or a post-pandemic cash crunch can end up compromising your accrued assets. However, loans against an FD account can protect you from the financial blues by offering the following set of benefits:
- Sizable credit limit
Certain lenders can offer financial support amounting to almost 90 percent of the existing FD corpus. Moreover, loan approval is never an issue as you are presenting collateral in the form of the existing FD policy.
- Competitive interest rates
As personal loan interest rates can even go as high as 14 percent per annum, FD loans are better bets courtesy of the lower rates. A general ballpark concerning FD loan rates is often one to two percent higher than the offered fixed deposit interest rates. As a majority of lenders offer 6 to 7 percent on investments, the loan interest is usually charged at 8 to even 9 percent, at maximum.
- Investment Assurance
A loan against a fixed deposit doesn’t interfere with your investment fund in general. Therefore, even with a loan running against the FD account, the original policy exists and you are eligible to earn interests, related taxes, and other associated benefits. To simplify further, an FD loan is all about projecting the heft of your investment in front of lenders as a form of repayment assurance.
- Seamless Approvals
As a matter of fact, FD loans often get approved in a heartbeat owing to the minimal dependence on credit score and extensive documentation. However, it is important to keep the investment documents handy for speeding up the process.
- Flexible Tenure
In case you are prepared to pay off the loan amount in full before the FD matures, tenure selection is never an issue and always in sync with your existing financial stead.
Each of these benefits associated with a loan against a fixed deposit qualifies the same as a reliable financial instrument, especially during a financial crisis and emergencies.