How loan against fixed deposit is better than unsecured personal loan?

Updated: Monday, April 14, 2014, 15:36 [IST]

Loan against fixed deposit held with a bank is always a better option when compared to an unsecured personal loan for meeting short-term financing needs. Here are listed few of the benefits that make this financing option enticing:

1. Lower interest rate: In comparison to the personal loan i.e. unsecured in nature that is not backed by any collateral security, loan against FD is offered at a relatively lower rate. Usually, banks charge 1-2% higher than what is offered by banks on such FDs. So, in general, loan against FD can be secured at 11-12% in contrast to a higher interest rate of between 16-25% charged on personal loan. Know how you can take loan against FD.

2. Fixed deposit remains intact and at the same time any immediate financial need is met: In case of loan against FD, borrower is not required to liquidate his investment and so the accruing rate of return remains the same i.e. no loss due to premature breaking of the FD has to be borne.

3. Easy processing: Loan against FD comes with hassle-free processing and at the same entails lower processing fee in comparison to personal loans which charge a relatively higher percentage as processing fee. Also, such a loan is sanctioned and disbursed in a shorter time frame.

4. No prepayment penalty: Unlike other financing options that charge prepayment penalty for paying- off the outstanding debt at an earlier date, loan against FD is free of such charges and penalty. So, the borrower depending upon his cash flow position can free himself of the liability.

5. Tenure: The tenure for the loan against fixed deposit can and usually extends up to the maturity term of the fixed deposit.

And as suggested in most of the cases, it is better to avail of a loan against fixed deposit which is about to mature in near term as then the amount that can be secured as loan will be higher. Nonetheless, the repayment tenure will also reduce.

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