Things To Consider Before Applying For A Loan Against Fixed Deposit

Considering a loan against your fixed deposit? Understand key aspects like interest rates, eligibility criteria, loan tenure, and potential risks. This guide provides comprehensive insights to help you make an informed borrowing decision.
Loan Against Fixed Deposit
3 minutes
09-June-2025

In times of financial need, a loan against a fixed deposit can be an attractive and convenient option. It allows individuals to use their existing fixed deposits as collateral to secure a loan from a financial institution. While this can be a beneficial solution, there are several crucial factors that prospective borrowers must consider before applying for a loan against a fixed deposit.

1. Interest rates and charges

Before committing to a loan against a fixed deposit, it is essential to understand the interest rates and charges associated with it. The interest rate on such loans is generally lower compared to traditional personal loans, as the fixed deposit acts as collateral. However, it is still vital to compare different lenders to ensure you get the most favourable terms. Additionally, be aware of any processing fees or penalties for prepayment, as these can significantly impact the overall cost of the loan.

2. Loan Tenure

Choose from a range of loan tenures, starting from 1
month and extending all the way to your deposit's maturity date. 

3. Loan amount eligibility

Bajaj Finance allows you to avail a loan against your fixed deposit after three months from the date of deposit. Eligible applicants include resident individuals (excluding foreign citizens, NRIs, and PIOs), Hindu Undivided Families (HUFs), sole proprietorships, and partnership firms. No documents are required for online LAFD applications. However, LAFD cannot be availed for FDs held by minors, those with attachment/garnishee notices, or those with liens for other loans.

4. Risk of default

While the loan is secured by the fixed deposit, defaulting on repayments can have serious consequences. It can lead to the bank or financial institution liquidating the fixed deposit to recover the outstanding amount. It is crucial to be aware of your repayment capacity and only take a loan that you can comfortably repay.

Documents required for loan against FD

When applying for a loan against your fixed deposit, lenders usually require minimal documentation especially if the FD is already held with them. The process is quick and designed for convenience. Typically, you’ll need the following:

  • Loan application form: Duly filled and signed
  • Identity proof: PAN card, Aadhaar card, passport, or voter ID
  • Address proof: Utility bill, Aadhaar card, or passport
  • Fixed deposit certificate: Or account details linked to the FD
  • Cancelled cheque: For bank account verification, if required

Do note that specific requirements may vary slightly based on the lender’s internal policies or the loan amount requested.

How to apply for a loan against FD?

Applying for a loan against your fixed deposit is simple and can be done online or offline. Below is a step-by-step process to guide you:

  1. Visit the lender’s official website or go to the nearest branch.
  2. Log in to your account or begin a new loan application.
  3. Select your existing fixed deposit from the available options.
  4. Enter the desired loan amount and choose a suitable repayment tenure.
  5. Upload the required documents like ID proof, address proof, and FD details.
  6. Review and submit your application for processing.
  7. Wait for verification and approval.
  8. Once approved, the loan amount will be disbursed directly to your bank account usually within 24-48 hours*.

The entire process is designed to be quick, especially for existing FD holders.

Conclusion

In conclusion, a loan against a fixed deposit can be a valuable financial tool when used responsibly. By considering the factors mentioned above and evaluating your financial situation, you can make an informed decision and harness the benefits of this borrowing option while safeguarding your financial stability.

Frequently asked questions

Is it good to take a loan against FD?

Yes, it’s a smart option if you need quick funds without breaking your deposit. It offers lower interest rates, minimal paperwork, and helps you retain the benefits of your ongoing fixed deposit.

Can you take a loan against a fixed deposit?

Yes, most banks and NBFCs allow you to take a loan against your fixed deposit. You can typically borrow up to 75% of the FD value, depending on the lender’s policy and your deposit tenure.

How to write an application for a loan against a fixed deposit?

Write a formal letter addressed to the bank manager. Mention your FD account number, requested loan amount, reason for the loan, and attach necessary documents like ID and address proof along with your FD receipt.

What to consider before taking out a loan?

Evaluate the loan interest rate, repayment terms, processing fees, and impact on your FD. Ensure you have a repayment plan and compare alternatives if needed, especially if the loan amount is substantial or for long-term use.

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