Fixed deposits are reliable investment instruments that help you grow your savings and set aside emergency funds. Investing in fixed deposits can help you gain high returns without risking the loss of your principal amount.
When buying a home, most individuals opt for breaking their fixed deposits, which can result in:
- Losing out on your savings
- Paying premature withdrawal charges
- Lower returns
However, a loan against fixed deposits offers you a fast and straightforward financing solution without eliminating your investment. It is most preferred when you need funds to match the cost of a new home.
Usually, financial companies give you loans for 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 of up to 2% more than the interest rate earned by your FD, which 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, and 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. Usually, a loan against FD requires minimal documentation where you need to fill out a single-page document and benefit from the lender’s guaranteed approval. Upon filling out the application, you get the funds without delay.
Additional Read: 5 myths about fixed deposits that you thought were true
After filing your application, lenders like Bajaj Finance Limited will disburse the funds in your account within 24 hours.
3. No processing fee, part pre-payment and foreclosure charges
While other loans have hidden charges, a loan against FD is a simple financial instrument. Financial companies usually don’t charge a processing fee. Moreover, there is no part pre-payment charge or foreclosure charge, so you can pay off your loan quickly whenever you have funds at your disposal.
4. Continued returns
The best advantage of a loan against FD is that your FD is still earning interest while you repay the loan and go about buying your new home. 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 keep in mind when taking a loan against FD:
- Your lender may have a right to lien your other deposits to settle any dues in case of a default
- Your loan tenor cannot exceed the tenor of your FD, so plan your repayment accordingly
- You may not get tax benefits on this loan as compared to a home loan
Now that you know the advantages of taking a loan against your FD start planning to buy a home 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
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