Prematurely breaking the FD to use money is a bad idea as your interest income is also gone! Instead, you can take a loan against FD! Read on to know more!
Mr. Prem Chaudhari, a resident of Kanpur, was once a happy man. He had two children, and one of them was to get married in a month’s time. However, just 15 days before the marriage when the family went to Lucknow to do shopping for the wedding, an unfortunate incident of robbery happened.
Some people barged into the house from the terrace and looted the money and jewelry worth Rs.3 lakh. Because of the incident, a vibrant feeling of joy and happiness converted into sadness. He needed around Rs.3 lakh to pay for wedding costs immediately.
He has invested in a Fixed Deposit Scheme of a leading online non-banking finance company (NBFC) for an amount of Rs.5 lakh. However, that amount was saved for the wedding expenses of his other child. Should he break the fixed deposit? Or, was there any other method to cover his needs of such a huge amount of money? This worried him a lot, and he had no option but consult his finance expert to get a solution.
The finance expert suggested him not breaking is fixed deposit because by doing so, he would also have to let go of the hefty interest payments received at a tenor completion. Thus, it was decided that breaking the fixed deposit prematurely was not a wise decision.
Prem Chaudhari thought of availing a personal loan to cover his needs, but since for that he would have to cough up around 12% as the rate of interest, it was ruled out. His finance manager finally advised him to avail the facility of applying for a loan against the fixed deposit amount.
Since he needed around 3 lakh and his FD investment was for Rs.5 lakh, he was eligible to get a 90% loan against it. They calculated and found that he could get a loan of up to Rs.4,50,000. He applied online for a loan of Rs.3,25,000 quickly which was approved soon, and relived a sigh of relief as the wedding went off without issues.
If you have invested in any of the fixed deposit schemes, you should know that you are eligible for a loan at a lower rate of interest. Let’s know more now!
What is a loan against fixed deposit?
Many leading banks and other financial institutions allow an FD investor to avail a short-term loan against your FD without breaking it prematurely and lose the interest payment.
You are allowed to avail a loan up to 90% of the fixed amount which is considered a security. In case if you fail to repay the loan in time, lenders may utilize the FD’s money to recover the loss.
The good news for availing a loan against FD is that you only need to pay 1-2% higher interest rate for it than your FD interest rate. What’s more, there are also no prepayment charges on such a loan. Nevertheless, you may have to pay a negligible processing fee to your lender to facilitate the same.
Thus, when compared to a conventional personal loan with a higher rate of interest along with other costs, a loan against FD is more economical and easy to afford!
The Bottom Line
Don’t be stuck with other costly money alternatives when you can easily make the most of the facility that’s available inside your feature-rich fixed deposits. Yes, should you have an urgent need for money, you would ask for a loan against the FD super-easy!