Loans against fixed deposit are increasing due to increase in rate of interest. Now banks are giving around 10% rate of interest on fixed deposit and if someone is looking for taking the loan from banks, the rate of interest would be 13-18% depending on the nature of loan. If someone has the fixed deposit from the banks, and he requires the money, it is very cheaper to get the loan against Fixed deposit compare to taking a fresh loan or discontinue the fixed deposit. The reasons are as follows.
If someone is taking the loan against Fixed Deposit, the rate of interest on this loan would be 2% higher of the rate of interest on fixed deposit. For example if someone has the fixed deposit at the rate of interest of 7%, he will get the loan against fixed deposit on 9%(7+2). So it will be very cheaper compare to taking a fresh loan on 13% to 18%. Also there will be very less formalities to taking a loan against fixed deposit.
If someone is planning to discontinue the fixed deposit, banks will take almost 70-80% interest earned on the deposit to return the money of FDR. So it is wisely to take a loan on the FDR, and when it matures or you are capable for repay it, just pay and collect your fixed deposit from the banks.
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