Know about Personal loan against fixed deposit
By Vaibhav Aggarwal
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Bank fixed deposits are one of the preferred saving schemes available to an average investor who looks forward to earn a higher rate as compared to the normal savings account in the bank. Fixed deposits come with many benefits coupled to them. One amongst them is the facility offered to the customer wherein he can take a personal against it when required. Interest charged on personal loan against fixed deposit is much lower than a regular personal loan as the bank gets the security of the fixed deposit against which it provides the loan.

Some of the key points of Personal Loan against Fixed Deposits:

Interest rate on personal loan is higher than any other loan

Personal loans are mostly costlier than home loans or for that matter of fact, any other loans. The interest rate on most of the personal loans is between 18% and 25%, while the floating rate on home loans is around 12%. The difference in the interest rates between the two is due to the greater amount of risk involved in a personal loan as compared to a home loan. If due to any reason the borrower defaults in the repayment of a personal loan, the bank has nothing to sell off and reclaim the amount as the bank does not take any collateral security for personal loans.Thus the higher amount of risk is reflected in the higher interest rates. So, people end up paying more interest on the personal loans.

Dhanlaxmi Bank offers interest rate of 1.75-2% over the interest rate of the FD which is much cheaper than one have to pay for a general personal loan.

Usually government owned banks charge 100-150 basis points (bps) above the deposit rate, while private banks charge around 200 bps higher than the deposit rate.

No need to liquidate the Fixed Deposit

If one has a fixed deposit lying with him/her and they are not going to use it in recent future for meeting a personal need, one can use it to get a loan from bank. If an individual needs money urgently and for a short time, he/she may take a loan against their fixed deposit instead of liquidating it and bearing penalty charges. Interest rates on such loans generally are 1% or 2% higher than the interest one receives from their fixed deposit. If one liquidates the deposit to meet some short-term financial needs, the bank can rework the interest for the actual period for which the deposit have been kept (on the least rate) and not the original higher rate of interest. Therefore, one should take a decision, depending on the best option.

Generally it is advisable to go for a loan when the deposit has run for a longer period. If the need is earlier it is advisable to break the deposit.

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