There are many ways to request for a loan. But which way is better for you to get loan? Parallely, you have to think about the process for repaying the loan as well. Very few people know that loan against Fixed Deposit is possible. Then what are the differences between personal loan and loan against Fixed Deposit? Let’s find out.
Loan against FD
There are many options for loans today. You can also take a loan against a bank fixed deposit. This requires collateralizing the FD with the bank. Banks and NBFCs offer loans up to 80-90% of the FD amount. The advantage of taking a loan against an FD is that it continues to earn interest even while the collateral is in place. The bank charges 1 to 2% more interest than the FD interest rate. Therefore, this is the cheapest loan option.
Personal loan
Speaking of personal loans , they are unsecured loans. This means you don’t need to pledge any assets to the bank or NBFC to obtain this loan. However, since it’s an unsecured loan, banks charge higher interest rates. Banks and NBFCs typically offer personal loans at 10 to 24 percent annual interest. The interest rate depends on the customer’s credit score and income profile. However, processing this loan takes a little longer. The biggest difference between a personal loan and a loan against a bank FD is the borrowing cost. For example, if your bank offers 6% annual interest on your FD, you’ll pay 7-8% interest on a loan against it. However, you may have to pay 10-24% interest on a personal loan. Therefore, taking a loan against an FD is significantly cheaper. Another advantage is that your FD money continues to earn interest, allowing your money to grow even during the loan period.
Which is better
Loan repayment against an FD is easy. You can pay it in installments or a lump sum. If you prefer a lump sum payment, you must do so before the FD matures. If you don’t repay within the stipulated time, the bank recovers the money from your FD. However, this does not negatively impact your credit score. Personal loans have fixed EMIs. Late payments incur penalties, which negatively impact your credit score.
If you have a fixed deposit with a bank and suddenly need money, you can take a loan against your fixed deposit. This will be much cheaper. Loans against fixed deposits are processed quickly because the bank already has your necessary information. If you don’t have an fixed deposit with a bank, you have the option of a personal loan.