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A loan against a fixed deposit (FD) is a secured loan where individuals can use their fixed deposit as collateral to obtain a loan from a financial institution. This type of loan provides a way to access funds without prematurely breaking the FD, allowing individuals to benefit from their FD's interest earnings while meeting immediate financial needs. Understanding the key features and aspects of loans against fixed deposits is crucial for making informed financial decisions.

1. How Loans Against Fixed Deposits Work
Collateral: The FD held by the individual serves as collateral for the loan.

Loan Amount: The loan amount is typically a percentage of the FD's value, often up to 90% of the FD amount.

Interest Rate and Repayment: Interest is charged on the loan amount, often at a slightly higher rate than the FD's interest rate. The loan is repaid in equated monthly installments (EMIs) over a specified tenure.

Loan Disbursement: Once the loan application is approved, the loan amount is disbursed to the borrower's bank account.

2. Key Components of Loans Against Fixed Deposits

Loan-to-Value (LTV) Ratio: The percentage of the FD value that the lender is willing to provide as a loan, typically ranging from 70% to 90%.

Interest Rate: The rate at which interest is charged on the loan amount, often slightly higher than the FD's interest rate.

Loan Tenure: The duration within which the borrower must repay the loan, usually ranging from a few months to the remaining FD tenure.

Repayment Options: Borrowers can choose to repay the loan through EMIs, including both principal and interest, over the loan tenure.

3. Benefits of Loans Against Fixed Deposits
Quick Access to Funds: Loans against fixed deposits provide a fast and convenient way to access funds without breaking the FD prematurely.

Retain FD Benefits: Borrowers continue to earn interest on the FD, maintaining its growth while utilizing funds for immediate needs.

No Credit Check: Since the loan is secured, there is no requirement for a credit check, making it accessible for individuals with varying credit histories.