A loan against fixed deposit (LAFD) is a financial facility that allows individuals to get a loan by pledging their existing fixed deposit as collateral. It is a popular option for those who need immediate funds but do not wish to break their fixed deposit prematurely. In this article, we will explore everything you need to know about the loan against fixed deposit facility.
How does it work?
When you apply for a loan against your fixed deposit with Bajaj Finance, we use your fixed deposit with us as security for the loan amount. The loan is typically a percentage of the fixed deposit's value, with the remaining amount still earning interest until maturity. Once the loan is repaid, the pledged fixed deposit is released back to the depositor.
- Interest rates and charges:
One of the significant advantages of this facility is the lower interest rates compared to other unsecured loans. Since the fixed deposit serves as collateral, the risk for the lender is minimal, resulting in reduced interest charges. However, it is essential to compare interest rates and any processing fees charged by different lenders to find the most favourable option. - Tenure and repayment:
The loan tenure is often linked to the remaining period of the fixed deposit. Borrowers can opt for a shorter tenure with higher EMIs or a longer tenure with lower EMIs. It is crucial to select a repayment tenure that aligns with your monthly budget. - Emergency fund consideration:
Before opting for a loan against fixed deposit, evaluate whether you have an emergency fund in place. An emergency fund can cover unforeseen expenses, preventing you from breaking your fixed deposit prematurely.
In conclusion, a loan against fixed deposit is a useful financial facility that offers quick access to funds at lower interest rates. However, borrowers should carefully consider their financial situation, repayment capability, and the impact on fixed deposit returns before availing of this facility. By making an informed decision, individuals can make the most of this borrowing option while safeguarding their financial stability.
