What is a fixed deposit?
A fixed deposit (FD) is a type of savings account where you deposit a lump sum of money for a fixed period of time and earn a fixed rate of interest. The money cannot be withdrawn before the maturity date without incurring a penalty fee. The interest rate depends on various factors, and the interest can be paid out at regular intervals or at maturity. FDs are considered a safe investment option but the returns may not keep pace with inflation, and the interest earned is taxable.
Is it good to take a loan on FD?
Taking a loan against your fixed deposit can be a good option in some situations, as it provides you with quick access to cash while still earning interest on your deposit. Here are some factors to consider when deciding whether it is a good idea for you:
Interest rate: The interest rate on a loan against FD is usually lower than other types of loans. Therefore, if you need funds and are unable to get a personal loan or credit card at a low-interest rate, a loan against FD could be a good option.
Repayment terms: The repayment terms for a loan against FD are usually more flexible than other types of loans. You can choose to repay the loan in one go or in installments, depending on your convenience.
Credit score: Since the loan is secured against your fixed deposit, your credit score does not play a role in the loan approval process. This makes it a good option for those with a low credit score.
Impact on FD interest: When you take a loan against FD, the bank or financial institution may reduce the interest rate on your deposit. This means that you may earn less interest on your deposit during the loan period.
Overall, taking a loan against your fixed deposit can be a good option if you need funds quickly and are unable to get a personal loan or credit card at a low-interest rate. However, it is important to carefully consider the terms and conditions of the loan before making a decision.