A loan against fixed deposit is one of the simplest ways to raise funds using loan against collateral security without breaking an existing investment. Since a fixed deposit is already a low-risk and liquid asset, lenders are comfortable offering quick loans at relatively low interest rates. Understanding the steps involved helps borrowers use this option efficiently and avoid unnecessary delays.
Understand how a loan against fixed deposit works
In a loan against fixed deposit, the fixed deposit acts as collateral security. The lender offers a loan by placing a lien on the deposit, while ownership of the deposit remains with the borrower. Interest continues to accrue on the fixed deposit even while the loan is active, which makes this form of loan against collateral security cost-effective for short-term needs.
Check eligibility and loan limits
The first step is to confirm eligibility. Most banks and financial institutions allow loans against fixed deposits held with them. The loan amount is usually a percentage of the deposit value, often ranging between seventy and ninety per cent. The exact limit depends on the institution’s policy and the deposit tenure.
Compare interest rates and terms
Before applying, compare interest rates, repayment flexibility, and processing charges. Interest rates on a loan against fixed deposit are typically slightly higher than the fixed deposit rate. Reviewing these terms helps borrowers choose the most suitable loan against collateral security option.
Submit the loan application
The application process is usually straightforward. Borrowers need to submit a loan request form along with basic identity documents. Since the fixed deposit already exists with the lender, documentation requirements are minimal compared to other loan types.
Pledge the fixed deposit as collateral
Once the application is approved, the fixed deposit is marked as collateral security. The lender places a lien on the deposit, restricting premature withdrawal until the loan is repaid. This step formalises the loan against collateral security arrangement.
Loan approval and disbursal
After pledging, the loan is sanctioned and disbursed quickly, often within the same day. Funds are credited directly to the borrower’s bank account, making this option suitable for urgent financial needs.
Repayment and release of collateral
Repayment terms are flexible. Borrowers may choose to repay interest periodically and principal at maturity, or repay both over time. Once the loan is fully repaid, the lien on the fixed deposit is removed, restoring full access.
Conclusion
Applying for a loan against fixed deposit is a structured and efficient way to raise funds using loan against collateral security. With low interest rates, minimal documentation, and quick disbursal, it offers a reliable solution for short-term liquidity without disturbing long-term savings.
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