Why a Loan Against FD Is Usually Cheaper
Because the bank already holds your FD as security, the risk to the lender is much lower than an unsecured personal loan typically reflected in a lower interest rate. Your FD also continues to earn its original interest rate throughout the loan tenure, so you're effectively paying only the spread between your FD rate and the loan rate.
When a Personal Loan Might Still Make Sense
• You don't have an FD to pledge, or the FD amount is too small to cover the amount needed.
• You want to keep your FD fully liquid for its original goal and are comfortable with the higher cost of an unsecured loan for a short duration.
• The FD's remaining tenure is very short, and pledging it isn't worth the complexity for a loan you'll repay quickly anyway.
What to Check Before Choosing
1. Processing fees and prepayment charges on both options a lower headline rate can be offset by higher fees.
2. What happens if you can't repay a loan against FD the bank can adjust the outstanding loan against the FD itself.
3. Whether breaking the FD entirely (accepting the premature withdrawal penalty) might actually be cheaper than either loan option.
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FAQs
Does taking a loan against my FD break the deposit?
No the FD continues as-is and keeps earning interest; the loan is a separate facility secured against it.
Is a loan against FD always cheaper than a personal loan?
Usually, because it's secured, but always compare the total cost including fees, not just the headline rate.
Can I take a loan against any FD?
Not necessarily. Eligibility, loan-to-value ratio, interest rate, and other terms depend on the bank or financial institution and the specific FD. It is important to check the applicable terms before taking a loan against a deposit.
How much loan can I get against my FD?
The amount generally depends on the value of your FD and the lender's applicable loan-to-value limit. Some lenders may offer around 75%–90% of the FD value, but the exact amount can vary.
What happens if I don't repay the loan against my FD?
If the loan is not repaid according to the agreed terms, the lender may have the right to recover the outstanding amount from the FD, subject to the applicable loan and deposit terms. The exact process depends on the lender.