Loan against fixed deposit is cheaper, more flexible than a personal loan

The effective rate of interest comes to 1-2%

• When in need of urgent funds, many either liquidate their fixed deposit (FD) or take a personal loan. A better option to fund your short-term cash need is to take a loan against FD

• Loan against FD is not only cheaper but also flexible. If a person has a three-year State Bank of India FD at 6.8 per cent, he can get a loan at 7.8 per cent. The interest rate on a personal loan would be upwards of 15 per cent

• The best part: your FD continues to earn interest. The effective cost of the loan, therefore, would come to 1-2 per cent, depending on the spread 

• Many banks don't allow pre-payment or foreclosure of personal loan for a specific period. In loan against FDs, borrower can opt for a flexible payment structure

• If a depositor liquidates an FD, most banks levy a penalty. The charges are 0.5-1 per cent of the FD interest rate 

• Just like an instant personal loan, many banks do offer loan against FD online. There could, however, be a minimum limit for taking a loan against FD via internet banking. The documentation involved is nil

• Most banks allow the depositor to take a loan up to 85-90 per cent of the fixed deposit. Some go as high as 95 per cent, and even allow flexible repayment. But they may insist on interest payment every month