Should I take a loan against fixed deposit to buy a flat?

When buying a flat, most individuals opt for breaking their fixed deposits, which can result in:
1) Losing out your savings
2) Attracting premature withdrawals
3) Lower interest

A loan against fixed deposits however, offers you a simple and fast financing solution without eliminating your investment. It is most preferred when you need funds to match the cost of a flat or new home.

Generally, financial companies give you loans for an amount that is up to 75% of the value of your cumulative FD and up to 60% of the value of your non-cumulative FD. Here’s why taking a loan against a fixed deposit may be a better option for you:

1. Nominal interest

Your lender will usually charge you an interest that is up to 2% more than the interest rate earned by your FD. This is more affordable than most other loans you find in the market. If you have a low credit score, a home loan may turn out to be more expensive. This is where a loan against FD offers an affordable credit.

2. Easy application process

As an existing customer with an FD with your lender, you will find that the process is hassle-free. A loan against FD requires minimal documentation. Usually, you need to fill out a single-page document and benefit from guaranteed approval from your lender. Upon filling out the application, you get the funds without delay.

Additional Read: 5 Myths About Fixed Deposits That You Thought Were True

Lenders like Bajaj Finance disburse the funds in your account within just 24 hours after your application is filed.

3. No processing fees, part prepayment and foreclosure charges

While other loans have hidden fees and charges, a loan against FD is a simple financial instrument. Financial companies usually don’t charge processing fee. Moreover, there is no part prepayment charge or foreclosure charge, so you can pay off your loan quickly whenever you have funds at your disposal.

4. It still earns interest

The best advantage of a loan against FD is that your FD is still earning an interest while you repay the loan and go about buying your new flat. This way you continue to grow your investment while you service your loan.

Additional Read: Why Premature Withdrawal of Fixed Deposit Is Not Financially Advisable?

Some things to watch out for, when taking a loan against FD:

i) Your lender may have a right to lien your other deposits to settle any dues in case of a default
ii) Your loan tenor cannot exceed the tenor of your FD, so plan your repayment accordingly
iii) You may not get tax benefits on this loan as compared to a home loan

Now that you are aware of the advantages of taking a loan against your FD to buy a flat, start planning in advance. Having a clear repayment schedule and talking to your lender to clear any doubts will ensure that you have a more rewarding experience.

Additional Read: Credit card against fd