Personal Loan Vs. Loan against Fixed Deposit: Which is the best?
Last Updated : June 21, 2016, 7:28 a.m.
Liquidity management is very important in present lifestyle. Even the most educated and informed people failed on this front. In case, if you met with any sudden financial crunch it is not simple and easy for everyone to manage it at their own. At the time of financial crisis, the first thing which comes to your mind to manage it is borrowing a loan. When you want to avail a loan to meet your financial requirements it is not simple and easy. Banks ask for various process and procedures to be completed along with a long list of documents to be deposited with the bank.
But, if you have a fixed deposit with the bank, you should not bother much about the loan. Your fixed deposit can rescue you from this financial crunch. You can use your fixed deposit to avail a loan. Yes, you can get a loan against your fixed deposit to meet your financial requirement if you don’t want to break it before the maturity. You can any time avail a loan from the bank against your fixed deposit during the tenure. In that way, you will not miss the interest of fixed deposit till the maturity. But, one question which bothers you is which one is the best? Taking a personal loan or availing loan against your fixed deposit. You should always compare different aspects of loan, fee, features, charges and interest rate before availing the loan. Let’s find out which one is the best, taking a personal loan or borrowing a loan against fixed deposit.
Rate of interest of loan: The rate of interest on personal loan is much higher than the rate of interest of loan against fixed deposit. The interest rate of fixed deposit is more or less similar in most of the banks. If you avail the loan against the fixed deposit you will pay 2% to 2.5% higher rate of interest against your fixed deposit rate of interest . Whereas, the rate of interest of personal loan ranges from 14% to 30% per annum, which is way too higher than the loan against fixed deposit. Fixed deposit loans are more affordable compared to even a lower rate of interest personal loan.
Loan amount limit: The maximum loan limit is different in fixed deposit and in personal loan. In fixed deposit you can avail the maximum amount upto the 90% of the FD amount. However, the loan amount for loan against fixed deposit varies from bank-to-bank and majorly depends upon the discretion of the bank. But, in personal loan, the loan limit depends upon the customers profile and repayment capacity. You can get higher or lower loan amount depending upon your profile and monthly salary. But, in fixed deposit the loan amount depends upon the fixed deposit amount.
Documents required for loan: When you apply for loan against fixed deposit usually banks don’t ask for any documents for loan approval or verification. But, when you apply for a personal loan you are required to submit few basic documents to get your loan application approved for the bank. So, while applying for personal loan you are supposed to submit few documents such as age proof, address proof, income proof and other basic documents.
Tenure of the loan: The maximum tenure of loan against fixed deposit should not be more than the maturity time of the fixed deposit. If your fixed deposit is for 20 years, so you can avail the loan for maximum 20 years. But, in personal loan the maximum tenure of the loan is 6 years. You can’t avail a loan for more than 6 years if you are availing the personal loan. Therefore, the tenure of the fixed deposit offers you bigger time spam as compared to tenure of the personal loan.
Processing fee: The bank charges processing fee to disburse personal loan. If you will avail a personal loan from any of the bank, it will charge minimum 0.5% to 2% or a minimum amount as processing fee for the loan. But, in case you are availing the loan against fixed deposit you are not supposed to pay any processing fee. Most of the banks usually don’t charge any processing fee while offering you the loan against fixed deposit.
Prepayment charges against loan: Most of the banks don’t charge any pre-payment charges for loan against fixed deposit. But if you are availing a personal loan there are chances that bank will charge pre-payment fee against the loan.