Loan Against Fixed Deposits: How It Works, Eligibility Criteria And Interest Rates | Business News

Last Updated:July 10, 2025, 10:16 IST

Taking a loan against your fixed deposits at the bank is considered a wiser option than a personal loan because of cheaper interest rates and other benefits.

Here is how the loan against fixed deposits differs from your personal loan. 

Facing a financial emergency? Opting for a loan is a common solution, but did you know that taking a loan against a Fixed Deposit (FD) is often considered a smarter financial move than going for a personal loan?

With a loan against FD, you can borrow up to 90% of your deposit amount, whereas personal loans typically cap at around ₹35 lakh. Not only does this option offer more favourable interest rates, but it also comes with additional benefits such as quicker approval, minimal documentation, and no need to break your FD.

Here’s everything you need to know about availing a loan against your Fixed Deposit at the bank.

How Does It Work

A loan against fixed deposits (FDs) functions similarly to a personal loan; borrowers receive the loan amount as a lump sum and repay it in equated monthly installments (EMIs). However, unlike a personal loan, this is a secured loan, where the FD is pledged as collateral.

The loan amount is determined using the Loan-to-Value (LTV) ratio, which typically ranges between 90% to 95% of the FD’s value. This means if you have an FD of ₹1,00,000, you could get a loan of up to ₹95,000, depending on the bank’s policy.

In terms of interest, banks usually charge about 2 percentage points higher than the interest you’re earning on your FD. For example, if your FD earns 8%, the loan interest would be approximately 10%.

Eligibility Criteria

To be eligible for a loan against a fixed deposit, the applicant must be at least 18 years old and fall into one of the following categories: salaried individual, self-employed professional, or businessperson. The minimum fixed deposit amount required is ₹5,000, and the FD should have been held for a minimum period of 3 to 6 months, depending on the bank’s policy. Additionally, in the case of individual or joint accounts, the FD receipt must be marked as a lien in favour of the bank offering the loan.

Applicants are required to submit a duly filled loan application form along with essential documents. These include valid identity and address proof, recent bank account statements, and the FD receipt of the deposit being pledged. If applicable, individuals should also provide Form 15G or 15H to claim exemption from TDS on interest earned from the fixed deposit.

Benefits

One of the main advantages of taking a loan against a fixed deposit is the lower interest rate, which is typically more affordable than that of a personal loan. Additionally, most banks do not charge a processing fee for such loans. Even if a fee is applied, it is usually much lower compared to other types of loans.

This type of loan also requires minimal documentation and is processed faster than personal loans, making it an ideal choice during urgent financial needs. Since the fixed deposit serves as collateral, lenders usually do not conduct a credit history check, making it easier for individuals with low or limited credit scores to secure funding.

However, it’s important to note that if the borrower defaults on the loan, the bank has the right to recover the outstanding amount from the fixed deposit, which could lead to a complete closure of the FD. Another limitation is that the loan tenure cannot exceed the remaining term of the fixed deposit, potentially restricting repayment flexibility.

Business Desk

A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al…Read More

A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al… Read More

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Delhi, India, India

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