Evaluating personal loan
against fixed deposits!
By Nirjharini
Tripathy | Bankbazaar.com – Fri 11 Apr, 2014
Fixed
deposits in banks are one of the most preferred investments by risk averse
Indians who also look forward to earn a higher interest rate as compared to the
normal savings account in the bank. Now these fixed deposits have another
wonderful benefit to offer the customers and that is the provision to take a
personal loan against it in times of requirement. This a great idea for
personal loan that actually comes at a much lower rate of interest as the bank
gets the security of the fixed deposit against which it provides the loan.
Key
benefits of Personal Loans against Fixed Deposits
The
reason for the growing popularity of this option as against traditional
unsecured personal loans is the host of added benefits that come with such a
loan.
- The interest rates available
for personal loans against fixed deposits are lesser than conventional
personal loans. The rates for such loans are generally 1 to 2% higher than
the rates being paid by the bank for the fixed deposit.
- Such a loan does not require
one to liquidate the FD which in that case lesser interest for being
broken midway. This way the asset remains while the immediate financial
requirements are met.
- The tenure for the personal
loans against fixed deposits normally extends up to the maturity of the
fixed deposits.
- The processing is also
hassle free as the bank where you already have the fixed deposit will
itself provide the personal loan against it.
- There is no prepayment
penalties associated with these kinds of loans which gives the borrower
the freedom to repay whenever his cash flow situation improves.
The
Procedure for Personal Loans against Fixed Deposits
The
process involved in availing a personal loan against fixed deposits is
relatively simple and fast. In this case the fixed deposit will have to be
hypothecated to the bank. At the time of the application the following
documents will have to be submitted to the bank.
- Demand Promissory Note
- Pledge/lien Letter
- Loan Documents
- Overdraft Agreement
- Application Form
- Deposit Receipt
- Signed Receipt
There is
a small processing fees that will be charged by the bank for the approval of
this loan and the loan will be sanctioned in a very small time frame.
However
one must carefully analyse the actual losses that will be accrued by taking a
loan against the fixed deposit at an early stage of the deposit as compared to
taking it against a deposit that is nearing maturity. In most cases it is
preferable to take loan against deposits that are closer to maturity as the
amount due will be more in this case. But at the same time one must understand
that the tenure available for repayment reduces in this case. Weighing the pros
and cons of both the situations the borrower will have to decide for himself
which is the most advantageous situation for him. However in all cases taking a
personal loan against fixed deposit is always better than a high interest rate
pure personal loan.
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