Broadly speaking loans are of two types – secured and unsecured. Secured loans are obtained after pledging any collateral asset that the lending institution accepts while unsecured loans are obtained without offering any asset as a back-up. The interest rates charged on secured loans is always lower than any unsecured loans, all other factors remaining constant.
The assets that are usually pledged to obtain loans are land parcels, flats, houses, gold, mutual fund units and even fixed deposits. Since many households invest in FDs, it offers the possibility of using them as collateral to secure a loan from a bank. Let’s see what interest rates prominent banks are charging on loans against FDs. The FD pledged has to be in the name of the applicant. Moreover, banks usually don’t check credit scores if the loan is secured with an FD.
SBI loans against FDs
The biggest bank in India, SBI, offers loans – both demand loans and overdraft – against FDs. The maximum amount that is sanctioned is 90% of the value of the FD. There is no prepayment and processing charges. The minimum amount of loan under this category is Rs 50,000 and the maximum is Rs 5 crore. SBI charges an interest rate that is 1% above the interest rate paid by FD in the same time period.
HDFC Bank loans against FDs
The biggest private sector lender in the country, HDFC Bank, instantly offers 90% of the value of the FD as a loan. In case of an overdraft, the bank will charge an interest rate of 2% above the FD rate for the period for which the OD is used. The bank states, “A minimum FD amount of Rs 25,000 for a minimum tenure of 6 months 1 day is required to avail an overdraft against FD/Super Saver facility.”
Axis Bank loans against FDs
Another major private sector bank, Axis Bank, also charges 2% interest rate over and above the interest rate it pays on an FD of the same tenure as the loan. For these loans, the FD receipt has to be discharged in favour of the bank. Once the loan has been extinguished, the borrower will be given back the FD receipt.
This service allows you to continue your investments while using it as a collateral to get loans from a bank. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
