One deliberate path towards achieving financial goals is through strategic deployment of financial resources. While saving and investing are fundamental aspects, it is equally indispensable to know about borrowing options, offering monetary assistance during challenging times. One such significant borrowing avenue is the Loan Against Fixed Deposit (FD).
Understanding Loan Against FD
The loan against FD is a secured loan where your fixed deposit account operates as collateral. Financial institutions allow you to take a loan against your FD, offering an optimal way of managing liquidity without breaking the fixed deposit. It serves as a viable option when you require immediate funds while allowing your FD to continue earning the interest.
Optimizing Loan Against FD to Achieve Your Financial Goals
Bridge the Cash Flow Gaps: Life can throw unpredictable financial emergencies at you, such as medical emergencies, urgent travel, or educational expenses. During these instances, the loan against FD can play the role of a lifesaver. This loan offers you instant funds, ensuring your financial goals remain unaffected while your FD continues to exist.
Avoid High-interest Loans: Compared to other forms of credit such as personal loans or credit cards, loans against FD carry lower interest rates. This is because the lender has the FD as collateral, reducing the risk. If you’re in dire need of money, instead of availing of a high-interest loan, consider the loan against FD, which offers a cost-effective borrowing option.
Manage Debts: If you’re in a credit card debt trap, a loan against FD can help you manage your debts effectively. You can borrow against your FD at a lower interest rate and pay off your high-interest credit card debt, creating a more balanced financial life.
Invest in New Ventures: If you plan to start a new venture or expand your existing business, a loan against FD can fuel your dreams. Getting this loan is quite easy, considering you already have an FD with the lender, and the processing time is quick, making it perfect for taking advantage of fleeting business opportunities.
Loan Against FD – Eligibility and Documents
While both salaried and self-employed individuals can apply for a loan against FD, the eligibility criteria and the supporting documents do vary according to the lending institution. Some banks demand an FD of six months minimum tenure, while others may require the FD to be in operation for at least one year. Similarly, for a loan against insurance policy eligibility and documents, the requirements may vary depending on the insurer and the type of policy held.
Common documents that may be required include KYC documents, latest photographs, bank statements, and a copy of the FD receipt. Some lenders may demand additional documents depending on their lending policies.
Alternative to Loan Against FD – Loan Against Mutual Funds
If you do not have a sizable FD and still need money, you may consider a loan against Mutual Funds. Similar to a loan against FD, the loan against Mutual Funds allows you to borrow funds using your Mutual Funds units as collateral.
Considerations before Availing Loan Against FD
Before availing a Loan against FD, ensure to consider the implications. Although it’s a secure loan with an easy process and lower interest rates, you stand to lose your FD if you default on the repayment. Besides, this loan doesn’t necessarily offer a high amount—it’s usually around 70-90% of your FD amount. Consider this option based on your need and repayment capability for an optimum financial decision.
Conclusion
In conclusion, a loan against FD can be a robust financial tool in your journey to achieve your financial goals. With proper planning and understanding, you can make the most out of this option, ensuring your financial stability and growth remain unhindered. Always remember, while borrowing facilitates immediate needs, it should never overshadow prudent financial habits such as saving and investing for a sound financial future.
Also Read:- Understanding the Affordability of Loans on Securities