Loan Against FD: When there is a sudden need for money, most people think of using their savings. Many believe that taking a loan can cause problems, so they try to avoid it. If you are also considering breaking your Fixed Deposit (FD) to meet your financial needs, hold on. Let’s find out when it is better to take a loan against your FD and when you should break it.
Know the disadvantages of breaking FD
Suppose you have made an FD for 2 years, on which you are getting 7 percent interest. In such a situation, it is possible that the bank will be giving about 6.5 percent interest on 1 year FD. Now if you break the FD when you need money, then you will also have to pay a penalty of about 1 percent for breaking the FD before time. In such a situation, you will get only about 5.5 percent interest on it.
Taking loan against FD will be beneficial
If you take a loan against FD, it will be cheaper than a normal personal loan. If you are getting 7 percent interest, then you will get a loan against FD at 8.5-9 percent interest. In this way, the savings you have made will be safe and will continue till maturity. That means even though you will be burdened with a loan, you will still have savings.
When should you not even think of breaking your FD?
Suppose you need 20-30% of the FD amount, then you should not break the FD at all. On the other hand, if your FD has been there for more than 6 months or a year, then do not look at it at all. If you need 80-90% of the FD amount and your FD is about to mature, then also try not to break the FD. In such a situation, arrange some money from somewhere else and you will get a loan of up to 80% on the FD.
When is it profitable to break FD?
If it has been only a few months since you started your FD, then you can break the FD instead of taking a loan. Do this only when you need a lot of money. If you need only 20-30 percent of the FD amount, then take a loan instead of breaking the FD. Think of breaking the FD only when you need at least 70 percent of the amount, that too when it has been only a few months since you started it.
