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Personal Loan or Loan Against FD - Which is Better and Why?

 In the event of a sudden financial crisis or meeting any short-term financial requirements, it’s a difficult choice between whether to go for a personal loan or get a loan against a fixed deposit, also known as an overdraft facility. 

So, if you are in this conundrum, worry not. In this blog article, we have broken down both the financing options that will help you to make the right choice.

Personal Loan or Loan Against FD - Which is Better and Why?

Loan against Fixed Deposit (FD)

A loan against FD or an overdraft is a type of secured loan that is availed of by pledging the fixed deposit as collateral with the lending institution. Availing of a loan against a fixed deposit is quick and requires minimal to no documentation. The following are the features of a loan against FD:

The loan amount depends on the fixed deposit amount: In most cases, lenders provide up to 110% of the fixed deposit amount as a loan. For instance, a person can avail of up to Rs 1,10,000 loan on a fixed deposit of Rs 1 lakh.

Interest Rate: The interest rate of a loan against FD is usually much higher than the interest rate offered on the fixed deposit. 

EMI calculation: Since a loan against FD is classified as overdraft, one can repay the loan at their convenience within the loan tenure. It can be repaid in installments or in a lump sum. There is no fixed EMI and one can withdraw multiple times from the approved OD amount. Interest is charged only on the drawn amount. 

Repayment tenure: The repayment tenure depends on the remaining fixed deposit tenure. For example, if you have an FD with a 5 years term and are taking a loan against the FD after 2 years of its opening, then the loan tenure will be 3 years. If not repaid within maturity, the amount will be adjusted against the maturity amount. This however, depends on the policy of the lender, as well as the profile of the borrower. 

Easier eligibility and low processing fees: Since the lender is not taking much of a  risk to advance a loan against FD, the eligibility criteria are less stringent and the processing fees charged are lower when compared to unsecured loans. 

Yes, loans against FD impact your credit score. If you fail to repay the outstanding loan amount before the maturity date of FD, it impacts your credit score negatively. 

Personal Loan VS Loan Against FD: Which One is Better?

At first look, a loan against FD seems to be the smart choice for meeting any short-term funding requirements. But, you should not decide solely based on the benefits offered on loan against FD.

Taking a loan against FD to meet any short-term financial requirements can impact your liquidity situation. Moreover, this kind of facility is only offered to individuals who have fixed deposits in a bank, and have an excellent relationship with the bank in terms of maintaining the required deposit levels, repayment history of past loans, etc. In case of self employed borrowers, or business entities, this facility will again only be offered to those who meet the lender’s required criteria. The repayment tenure of an OD facility is usually shorter than that of a personal loan, and the loan amount that can be borrowed through this facility depends on the value of the fixed deposit pledged, as well as the lender’s policy. 

Benefits of Taking a Personal Loan

Choice of Lenders: Personal loans are offered by banks, as well as NBFCs and fintechs. Thus, borrowers can do their research before finalizing on a lender in terms of matching eligibility requirements, interest rates offered, etc.

Higher loan amount: You can borrow up to Rs 25 lakh, depending on your eligibility and the lender’s policy. Use our personal loan eligibility calculator to get an estimate of the maximum amount you may be able to borrow.

Longer repayment tenure: You can repay the borrowed amount in equal monthly installments or EMIs over a period ranging between 12 to 60 months. Using the personal loan calculator, you can plan your repayment tenure and keep your EMI pocket-friendly. 

No need to provide collateral: Personal loan falls under the category of unsecured loan, meaning, you don’t need to pledge any assets or investments as collateral to avail of the loan. 

Helps to improve credit score: With regular EMI payments, you can improve your credit score, which will help you to become more creditworthy and easily avail of any loan in the future. Lenders like Fullerton India also consider applicants who may not have any credit history or a credit score of “-1” providing that they meet the other required personal loan eligibility criteria.

Documents Required for Personal Loan

You need to provide the following basic documents to avail of a personal loan:

  • PAN & ID proof
  • Proof of Address (including employment address proof)
  • Last three-months salary slip
  • Last six-months bank account statement

If you are a self-employed professional, you need to provide income proof and the financials of your business. 


Both, personal loan and loan against FD have their own advantages and disadvantages. If your requirement is small, frequent, and you have fixed deposits in your bank already, a loan against FD could be a better option. However, a personal loan should be preferred, if you need a loan for a higher amount, no fixed deposits, and want to have a longer repayment tenure. Moreover, do note that taking a loan against FD impacts your liquidity position as you cannot redeem the FD before tenure or need to do a settlement. 

By meeting all the eligibility criteria and selecting the EMI amount that least impacts your finances, you can negotiate a lower personal loan interest rate. Additionally, you can also apply for a personal loan online and get instant in-principle approval.