Can we take a Loan Against FD for constructing a flat?

You usually invest your hard-earned money in Fixed Deposits to keep it safe and earn regular income in the form of interest. However, this money remains locked-in for a certain period of time. This can be problematic when you are planning a big purchase, like buying a flat. Is there any way to use your FD money to buy the flat without breaking your FD? Let’s find out!

What is a Fixed Deposit?

A Fixed Deposit allows you to deposit your funds with a bank or financial institution to earn interest. Tenure and interest rates are fixed at the time of opening the FD. The money remains locked-in till the FD's tenure ends. Upon maturity, you can either opt to renew the deposit or withdraw the funds.

Taking a Loan against FD for constructing flat

A useful feature of a Fixed Deposit is that you can take a loan against it. This ensures that you continue to earn returns while the funds remain available to you in case of an emergency. If you are planning to buy or construct a flat and are running short of funds, you can apply for a loan against your FD.

Features of Loan against FDs

• Nominal interest: Loans against FDs are secured and therefore, the interest rate is affordable. The interest rate applicable on Loans against FDs is usually 2% above the interest rate on your FD.
• Easy application: The application process for a Loan against FD is hassle-free. You need to fill an application form, with minimal documentation required since the bank already has your details that you submitted when opening your FD.
• Minimal charges: Charges associated with Loans against FDs are minimal but might vary across banks. There are no hidden charges for Loans against FDs. Most banks don’t charge processing fees, prepayment charges or even foreclosure charges.
• Continuity in returns: Loans against FDs provide the required money without requiring you to break the FD. You will still earn interest on the remaining amount in your FD. The interest income on FD basically compensates for the interest cost on the loan.

Important points to keep in mind

• The lender has the right to foreclose your FD in case you default on repayment.
• The loan tenure cannot exceed the duration of your FD.
• The tax benefits on your Loan against FD might not be available, as in the case of Home Loans.

Also Read: Loan Against Bank Fixed Deposit: All You Need To Know

In a nutshell

Loans against Fixed Deposits can be a convenient way to avail funds in case of any emergency or for making big-time purchases like a flat. At the same time, it is important to be aware of the terms and conditions offered on the loan.

Axis Bank provides a Loan against FD of up to 85% of the value of your FD. The interest rates vary between 7% and 10%, providing you with funds at the most affordable rates. Access seamless financing now with a Loan against FD!

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.