Difference Between Personal Loan And Loan Against FD

While a sudden financial emergency, loans happen to be a great help. Personal loans and loans against fixed deposits (FD) are popular among various loan options. A person’s requirements and financial condition help them decide which one to choose. Here are the differences between a personal loan and a loan against a fixed deposit to help you pick the better loan for your monetary requirement.

Personal Loans

A personal loan is an unsecured loan that a person can take for immediate financial requirements. It is not backed by collateral, and the borrower can use the loan amount for various purposes.

Loan Against FD

A loan against FD is a secured loan where the fixed deposit account of the individual acts as collateral against the loan. A loan against FD is like an overdraft facility. The borrower can use the loan amount for unrestricted end uses. Lenders may grant up to 100% FD as a loan against FD. You can avail of a loan against FD for even an FD minimum amount. An interest rate calculator for FD can show you your interest earned even when you use it to get a loan.

Difference between Personal Loan and Loan Against Fixed Deposit

Let us now see how a personal loan is different from a loan against a fixed deposit and which one is the more viable option:

• Ease of access: Loans against fixed deposits are secured loans; therefore, they are easily available to borrowers with a fixed deposit account. On the other hand, personal loans are unsecured loans, and the lender does not have the backing of a borrower’s assets or money if the borrower defaults on his loan repayment. It makes personal loans not as easy to avail of as loans against fixed deposits.
• Rate of interest: Since secured loans have the backing of an asset or the customer’s cash, their applicable interest rate is lower than unsecured loans. A borrower can avail a cheaper loan in the form of a loan against FD than a personal loan. The flexible and low-interest rate on loans against FD favours a customer in his times of need.
• EMI calculation: A loan against a fixed deposit is like an overdraft facility, and the borrower can repay the loan anytime during the FD tenure at his convenience. A fixed deposit account with a long life, such as 10 to 20 years, gives the borrower a longer repayment tenure than a personal loan with a maximum tenure of five years. Additionally, the borrower can repay a loan against FD as a lump sum amount or in instalments.
• Loan repayment tenure: As discussed above, a personal loan has a tenure of a maximum of five years. On the other hand, a loan against a fixed deposit has a much more flexible duration. The loan repayment duration of a loan against a fixed deposit depends on the remaining tenure of the fixed deposit account. For example, if you have deposited an FD minimum amount for 10 years and avail a loan against FD after three years of the FD tenure, the remaining seven years of the FD’s life is your repayment tenure.
• Default on loan repayment: A failure to repay a personal loan on time can land the borrower into legal trouble. The lenders do not have the borrower’s assets to recover their money and will have to take action against the borrower in the event of non-repayment. The borrower’s fixed deposit backs a loan against FD, and if the borrower is unable to repay the loan during the FD’s tenure, the lender adjusts the amount from the borrower’s FD account.
• Loan amount: The maximum loan amount a person can take as a personal loan is Rs.25 lakhs for most lenders. This loan amount may not be enough to meet big-ticket expenses. The loan against the FD amount is based on the amount, and if you hold a high fixed deposit, you can get a loan of a higher amount.

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Borrowers can get a loan against FD and continue to earn interest returns on their FD investments. To calculate your earnings from a fixed deposit investment, use an interest rate calculator for FD.