The Reasons For Rise In Loans Against Fixed
Deposits
Are you in need of quick cash but don't want to dip into your savings? Are you a fixed deposit holder who has been
noticing an increase in the number of loans against fixed deposit options being
offered to you by banks and financial institutions?
Well, you are not alone. Loan against fixed deposit
has become increasingly popular in recent years and there are several reasons
for this.
First, let's define what a fixed deposit is. A
fixed deposit is a popular investment option where you deposit a lump sum of
money with a bank or financial institution for a fixed period of time, and earn
a fixed rate of interest on your investment. The longer the period of
investment, the higher the interest rate you can earn.
In this blog post, I’ll explore the reasons behind
the increase in loan against fixed deposits and how it can benefit you as a
fixed deposit holder. So, buckle up and let's dive into it.
#1. Low-Risk
Investment Option
Fixed deposits are one of the most popular
investment options in India. They are low-risk and offer guaranteed returns. As
a result, many people choose to invest in fixed deposits to secure their
savings. However, in case of a financial emergency, withdrawing the money from
the fixed deposit before maturity can result in penalty charges. In such cases,
taking a loan against fixed deposit can be a better option. This way, you can
avoid paying penalty charges and still have access to funds in case of an
emergency.
#2. Quick and
Hassle-Free Loan
Taking a loan against fixed deposit is a quick and
hassle-free process. Unlike other loans that require a lot of documentation and
verification, a loan against fixed deposit requires minimal paperwork. Since
the loan is secured by the fixed deposit, the lender does not need to verify
your credit history or income. As a result, the loan processing time is much
faster compared to other loans.
#3. Easy
Eligibility. No Credit Check Required
To be eligible for a loan against fixed deposit,
you just need to have a fixed deposit with the lender. You don't need to have a
high credit score, income proof, or any other complicated eligibility criteria.
This means that even if you have a poor credit score, you can still avail of
this loan. This makes it a great option for those who may not qualify for other
types of loans.
#4. No Need
for a Guarantor
Unlike other types of loans, you don't need a
guarantor to take a loan against your fixed deposit. This can be a relief for
those who don't have anyone to vouch for them or don't want to involve a third
party in their financial affairs.
#5. Lower Interest
Rates
The interest rates offered on a loan against fixed
deposit are usually lower compared to other unsecured loans. Since the loan is
secured by the fixed deposit, the lender takes on less risk and offers lower
interest rates. This makes it a cost-effective option for those in need of
funds.
#6. No Prepayment
Charges
Most lenders do not charge prepayment penalties on
a loan against fixed deposit. This means that you can repay the loan in full or
in part without incurring any extra charges. This is because the loan is
secured by your fixed deposit, and the lender doesn't have any incentive to
keep you locked into the loan. This makes it a flexible loan option that allows
you to repay the loan on your own terms.
#7. Maintains
the Fixed Deposit Investment
Taking a loan against fixed deposit allows you to
maintain your fixed deposit investment while still having access to funds. This
can be especially beneficial for those who have invested in long-term fixed
deposits and do not want to break the investment before maturity. By taking a
loan against the fixed deposit, you can maintain the investment and still have
access to funds in case of an emergency.
#8. Flexibility
in Loan Tenure
The tenure of a loan against fixed deposit can
range from a few months to a few years, depending on the lender. This makes it
a flexible loan option that can be tailored to your specific needs. You can
choose a tenure that suits your repayment capacity and financial goals.
#9. No Need
for Additional Collateral
Since the loan is secured by the fixed deposit,
there is no need for additional collateral. This can be a relief for those who
do not have any other assets to pledge as collateral. It also eliminates the risk
of losing additional assets in case of default.
#10. Quick
Disbursal
Unlike other types of loans, a loan against fixed
deposit can be disbursed quickly, often within 24 hours of the loan
application. This is because the lender doesn't need to do a credit check or
other extensive paperwork, as the fixed deposit serves as collateral.
#11. No Need
to Break Your Fixed Deposit
If you withdraw money from your fixed deposit
before the maturity period, you may have to pay a penalty or lose out on the
interest earnings. However, with a loan against fixed deposit, you don't have
to break your fixed deposit to get the required funds.
#12. Retain
Your Investment
When you take a loan against your fixed deposit,
you don't have to liquidate your investment. This means that your fixed deposit
continues to earn interest while you use the funds from the loan. This is a
great advantage if you don't want to lose out on the benefits of your
investment.
#13. Tax
Benefits
If you take a loan against your fixed deposit, you
can claim tax benefits on the interest paid on the loan. This can help reduce
your tax liability and save you money.
How a Loan against Fixed Deposits Can Benefit us:-
1. Emergency
Expenses
Life is unpredictable, and you never know when you
might need a large sum of money for an emergency expense. Whether it's a
medical emergency or a sudden job loss, a loan against your fixed deposit can
provide you with the required funds quickly, without having to sell off your
investments.
2. Education
Expenses
If you need funds for your child's education, you
can take a loan against your fixed deposit instead of withdrawing money from
your savings account or selling your investments. This will help you avoid the
penalties and taxes associated with early withdrawal of funds.
3. Business
Expansion
If you are an entrepreneur and need funds for
business expansion, a loan against fixed deposit can be a cost-effective way to
get the required capital. You can use the loan amount to purchase new equipment,
hire staff, or expand your operations.
4. Home
Renovation
If you are planning to renovate your home or
undertake any other home improvement project, a loan against fixed deposit can
be a smart financing option. You can use the loan amount to pay for the renovation
expenses and avoid dipping into your savings.
5. Debt
Consolidation
If you have multiple debts with high-interest
rates, you can take a loan against your fixed deposit to pay off the debts and
consolidate them into one. This will help you save money on interest payments
and simplify your debt repayment process.
6. Wedding
Expenses
Weddings in India can be expensive affairs, and if
you don't have enough savings, you can consider taking a loan against your
fixed deposit to fund the wedding expenses. This will help you avoid dipping
into your emergency fund or other investments.
In all these scenarios, a loan against fixed
deposit can be a smart financial move for us. With low-interest rates, quick
disbursal, and minimal paperwork, this loan can help you meet your financial
needs without putting a strain on your budget.
Best Loan Options
for Fixed Deposit Holders in India:
1. Loan Against Fixed Deposit (FD)
This is the
most common type of loan available for fixed deposit holders in India. The loan
amount that can be availed is usually 70-90% of the fixed deposit amount. The
tenure of the loan can range from a few months to a few years, depending on the
lender. The interest rates offered on this loan are usually 1-2% higher than
the interest rate offered on the fixed deposit.
2. Overdraft Facility Against Fixed Deposit
An overdraft
facility is a type of loan where the lender gives you a credit limit against
your fixed deposit. You can withdraw money as and when required, up to the
credit limit. Interest is charged only on the amount withdrawn and for the
duration it is withdrawn. This can be a great option for those who need access
to funds regularly, without having to take a lump sum loan.
3. Loan Against Cumulative Fixed Deposit
A cumulative
fixed deposit is one where the interest earned on the deposit is reinvested in
the deposit. This type of fixed deposit earns higher interest rates compared to
non-cumulative fixed deposits.
A loan against cumulative fixed deposit allows
you to take a loan against the principal amount and the accumulated interest on
the fixed deposit.
4. Loan Against Non-Cumulative Fixed Deposit
A
non-cumulative fixed deposit is one where the interest earned is paid out
periodically, usually monthly or quarterly. A loan against non-cumulative fixed
deposit allows you to take a loan against the principal amount and the interest
earned till that point in time.
5. Loan Against Fixed Deposit Receipt
A fixed
deposit receipt is a document issued by the bank or financial institution that
holds your fixed deposit. This document can be used as collateral for a loan.
The loan amount that can be availed is usually 70-90% of the value of the fixed
deposit receipt.
When choosing a loan option against fixed deposit, it is important to consider the interest rates, tenure, and repayment options offered by different lenders. You should also calculate the EMI (Equated Monthly Instalment) to ensure that it is affordable for you.
Conclusion
The increase in loan against fixed
deposits can be attributed to the various benefits it offers to the fixed
deposit holders. It is a low-risk investment option that allows you to have access
to funds in case of an emergency without incurring any penalty charges. With
lower interest rates, flexible tenure, and no prepayment charges, it is a
cost-effective and convenient loan option. So, if you are a fixed deposit
holder in need of quick cash, taking a loan against fixed deposit can be a
great option for you.
However, it is important to remember that a loan
against fixed deposit should only be taken when necessary. Since your fixed
deposit serves as collateral, it is at risk of being seized if you fail to
repay the loan. Therefore, make sure you have a repayment plan in place before
taking the loan.
It is also important to shop around for the best
loan against fixed deposit interest rates and terms. Different financial
institutions offer different interest rates and loan terms, so it pays to do
your research and compare options before making a decision.
A loan
against fixed deposit is a type of secured loan where your fixed deposit serves
as collateral. The lender can give you a loan amount that is a percentage of
your fixed deposit amount, which can be repaid over a period of time with
interest. Since the loan is secured by your fixed deposit, the interest rates
offered are usually lower compared to other unsecured loans.
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