Smart ways to borrow in 2025 without breaking your fixed deposit

For many, fixed deposits (FDs) are the bedrock of financial security. They offer dependable returns and a sense of certainty. However, emergencies or planned expenses sometimes require additional funds. Traditionally, people would break their FD to access funds, losing out on potential earnings and incurring penalties. Luckily, in 2025, smarter borrowing options are available. Among them, a loan against fixed deposit stands out as a fast and cost-effective solution. By leveraging this facility, you can retain your FD while fulfilling your financial needs. Moreover, with a competitive loan against fixed deposit interest rate, it’s a prudent strategy for modern borrowers.

Understanding a loan against fixed deposit

A loan against fixed deposit (LAFD) is a secured loan offered by banks and non-banking financial companies (NBFCs) in India. It allows you to take a loan by pledging your existing FD as collateral. Since the FD is with the lender, the process is simple, swift, and involves minimal paperwork. Loan amounts usually range between 70% to 90% of your FD’s value, depending on the bank’s policy.

This option ensures that your fixed deposit continues to accrue interest, even as you access liquidity. No pre-closure of the FD is needed, thereby protecting your investment and discipline.

Key benefits of taking a loan against fixed deposit

  1. Retain your investment

One of the major advantages is that you don’t have to withdraw or break your FD. Your deposit remains untouched and continues to earn interest until maturity. This preserves your savings habits and future goals.

  1. Lower interest rates

Since it is a secured loan, the loan against fixed deposit interest rate is notably lower compared to unsecured loans like personal loans or credit cards. Typically, lenders charge just 1% to 2% above the FD’s prevailing interest rate. For instance, if your FD provides 7% per annum, the loan interest rate may be in the range of 8% to 9% per annum. This makes borrowing much more affordable.

  1. Quick and hassle-free process

Getting a loan against your FD often just requires filling a form or applying through internet banking. Funds are disbursed quickly, sometimes within hours, as documentation and verification are minimal.

  1. No impact on credit score

Unless the repayment is delayed or defaulted, taking a loan against fixed deposit does not affect your credit score. This is significantly different from unsecured borrowing.

  1. Flexible repayment options

You can choose to pay only interest during the loan tenure and repay the principal amount upon maturity, or opt for regular EMI repayments. Most banks provide this flexibility.

How does a loan against fixed deposit work

Let’s understand the practical steps involved:

– Eligibility: Anyone holding an FD with a bank or NBFC can apply. Joint account holders must ensure both parties consent.

– Loan amount: Generally, from 70% to 90% of the FD value can be availed as a loan.

– Interest rate: The loan against fixed deposit interest rate is fixed as a spread (usually 1%–2%) over your deposit rate.

– Tenure: The loan tenure coincides with the maturity date of your FD.

– Repayment: You can repay the loan in lump sum at maturity or via EMI, as per the terms chosen.

Suppose you have an FD worth Rs. 5 lakh earning 7% p.a. interest. Your bank offers 90% funding, i.e., Rs. 4.5 lakh as loan, at 9% (2% higher than FD rate). You receive funds instantly without disturbing your FD.

Comparing loan against fixed deposit with other borrowing options

When in need of funds, borrowers often choose between secured and unsecured loans. A loan against fixed deposit (LAFD) is a low-cost, low-risk option—but how does it stack up against personal loans or credit cards? Here is a comparison to help you make an informed financial decision.

Loan against fixed deposit vs personal loan

– Interest rates: LAFD is significantly cheaper (8-9% p.a. in 2025) compared to personal loans (10-18% p.a.).

– Processing time: LAFD is quick due to existing relationship with the lender.

– Documentation: Minimal or nil for LAFD; personal loans require income proof, salary slips, etc.

– Collateral: LAFD is secured; personal loan is unsecured and higher risk for banks.

Loan against fixed deposit vs credit cards

– Interest rates: Credit cards can charge 36% to 48% p.a. on revolving balances, which is much higher than a loan against fixed deposit interest rate.

– Limits: Credit card cash withdrawals are often limited and come with high charges.

– Risk: LAFD is low risk and doesn’t affect your credit score directly.

Please confirm with your bank for current rates, as they can change based on RBI policy and the lender’s discretion.

When should you consider a loan against fixed deposit

You should consider this facility under the following circumstances:

– Short-term liquidity needs: For emergencies like medical needs, or planned expenditures such as weddings, travel, education, etc.

– Business cash flow needs: If you run a business and need working capital without disturbing your long-term savings.

– Avoiding FD breakage: To ensure your investment goals and returns remain intact.

– Low cost borrowing: When you want to avoid high-interest unsecured loans.

However, avoid excessive borrowing or using this facility for speculative purposes.

Factors to keep in mind before opting for a loan against fixed deposit

  1. Loan to value (LTV) ratio

Not all banks provide the maximum 90% funding. The LTV can vary between lenders and may depend on your relationship with the bank.

  1. Repayment flexibility

Check if the bank offers repayment in monthly EMIs or bullet payments, as per your requirement.

  1. Overdue risk

If you fail to repay, the bank can foreclose your FD to recover the dues, which will affect your returns.

  1. Prepayment and foreclosure charges

Most lenders do not levy foreclosure or prepayment penalties on this type of loan. However, check with your bank for their latest policy.

  1. Tax implications

Interest paid on LAFD cannot be claimed for tax deduction under Section 80C or Section 24(b), as with some other loans.

Loan Against Mutual Funds allows you to pledge your mutual fund units as collateral without liquidating your investments. It offers quick access to funds with minimal documentation and competitive interest rates.

Step-by-step process to apply for a loan against fixed deposit

  • Check FD eligibility: Confirm whether your fixed deposit is eligible for a loan with the respective bank or NBFC. Some banks may have restrictions based on tenure, type (regular or tax-saving), or ownership (individual/joint).
  • Calculate loan requirement: Assess how much funding you need and how much of your FD you are comfortable pledging. Typically, you can borrow 75–90% of the FD value.
  • Choose application mode: Apply through internet banking, mobile app, or by visiting the bank branch. Most banks now offer instant online options.
  • Fill out application form: Provide basic details like FD account number, required loan amount, and tenure. No income proof is usually required.
  • Verification and approval: The bank verifies your FD details and processes your request within hours or a day.
  • Loan disbursal: Once approved, the sanctioned amount is credited to your linked savings or current account.
  • Start repayment: Begin EMI or bullet repayment based on your chosen structure. Interest is charged monthly or at maturity, depending on terms.

Tips to maximise benefits while availing a loan against fixed deposit

  • Compare interest rates across multiple banks and NBFCs to secure the lowest possible markup above your FD interest (usually 1–2%).
  • Keep a high FD balance, as the loan amount sanctioned is typically 75–90% of the FD value.
  • Choose a shorter tenure if you can repay quickly—this reduces your overall interest outflow.
  • Repay EMIs on time to avoid penalties or forced FD foreclosure, which affects both savings and credit score.
  • Use the loan for productive purposes like education, emergency expenses, or business needs—not for high-risk investments or speculative trading.
  • Avoid premature FD withdrawal during the loan term to prevent disruptions in the loan structure.
  • Check prepayment terms—some lenders allow partial or full prepayment without additional charges.

Alternatives to loan against fixed deposit

  • Loan Against Property (LAP): Offers higher loan amounts and longer tenure but involves lengthy processing and documentation.
  • Loan Against Shares/Mutual Funds: Provides fast liquidity but is market-linked, so loan eligibility fluctuates with asset value.
  • Personal Loan: Unsecured and quick to process, ideal for urgent needs—but usually comes with high interest rates.
  • Gold Loan: Requires pledging gold jewellery or coins; interest rates are moderate and processing is fast.
  • Top-up on Existing Loans: If you already have a home or personal loan, some lenders offer top-ups at competitive rates.
  • Overdraft Facility Against Savings Account: An alternative if you have substantial savings, though limits are usually lower.
  • Peer-to-Peer Lending Platforms: Useful for short-term needs, but interest rates vary based on your credit profile.

Conclusion

A loan against fixed deposit in 2025 is one of the most intelligent ways to borrow money in India. It enables you to unlock funds quickly and affordably, while letting your fixed deposit continue to grow. The attractive loan against fixed deposit interest rate makes it highly cost-effective compared to other forms of borrowing. Whether for medical emergencies, education, weddings or business needs, this secured loan is ideal for financially smart individuals. Always compare lenders, read the fine print and borrow responsibly to secure your financial future. By choosing the right borrowing strategy, you can preserve your investments and achieve your goals without stress.

The post Smart ways to borrow in 2025 without breaking your fixed deposit appeared first on Daily Excelsior.

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