There’s no denying the importance of a loan to meet our financial needs. Some of them can be of an emergency nature where you simply can’t wait. Some of them would be a wish like an exotic trip to Europe and other picturesque destinations around the world. Of the many loan options, people usually stumble upon personal loan vs loan against fixed deposit. Being in a dilemma never helps! It’s better to be clear about your goals and the pros and cons of these two lending products to meet your needs and stay on top of your financial game. Let us figure out the better alternative for you as we explore the differences between these two products. Take a look!
What is a Personal Loan?
A personal loan is an unsecured credit you can access from banks and non-banking financial companies (NBFCs) based on your income, credit score, repayment potential, etc.
What is a Loan Against a Fixed Deposit?
A loan against a fixed deposit is a secured credit offered by the banks to borrowers. The bank will take a fixed deposit as collateral before sanctioning a loan. The tenure of the fixed deposit determines the maximum time you can get to repay the loan.
Factors That Help You Decide Between Personal Loan vs Loan Against Fixed Deposit
Deciding the right alternative from a personal loan vs loan against fixed deposit is easy when being aware of the financial implications associated with both. Besides, the product that is easy to access and suited to your financial needs should be your choice. Let’s begin evaluating the two.
Consider Interest Rates Before Choosing from Personal Loan vs Loan Against Fixed Deposit
As personal loans are unsecured, lenders typically charge higher interest rates of around 12-25% per annum on average. Whereas a loan against fixed deposits is granted at a much lower rate. The interest rate greatly decides the Equated Monthly Instalment (EMI) you need to pay over the loan term. The greater the rates, the greater the EMI and overall interest repayments. But there’s a catch! If there’s a remarkable difference in the tenure between a personal loan and a loan against a fixed deposit, overall interest repayments can differ considerably.
A personal loan is offered for a maximum of five years by most banks across India, whereas a loan against a fixed deposit can continue till the deposit tenure.
For example, Sakshi took a personal loan of INR 5 lakh at an interest rate of 15% per annum for five years. Manish took the same loan amount against a fixed deposit that had nine years left before the maturity date. He obtained the loan for nine years at an interest rate of 10% per annum.
Sakshi will need to pay the personal loan EMI of INR 11,895, leading to overall interest repayments of INR 2,13,697.90
Whereas Manish’s EMI liability will be INR 7,039, leading to overall interest repayments worth INR 2,60,249.
Loan Quantum – An Important Consideration to Make
Lenders can grant you a loan of up to INR 30-50 lakh based on your income, existing debt obligations, repayment potential and credit score. People with high income and fewer to zero debt obligations at present will likely have a higher repayment potential, enhancing the scope for greater disbursals.
Lenders, on the other hand, disburse up to 90% of the fixed deposit. So, if your fixed deposit amount is modest, say INR 50,000, you may not be able to meet your hefty financial needs with a loan against FD alone.
Which of the Two – Personal Loan vs Loan Against Fixed Deposit – is Approved Quickly?
A loan against a fixed deposit can be approved immediately since it does not require any documentation other than your fixed deposit receipt. The approval for a personal loan can take a day or two. Lenders will evaluate your personal loan eligibility based on your income, credit score and the documents you present. If you have sufficient income to pay the EMIs and a credit score of more than 750, lenders will have no problem approving it quickly.
People with a strong credit history and high income also get a pre-approved personal loan offer. With this, the loan disbursal is immediate as the lender is assured of your repayment capability and already has your documents.
Closing Words
Both personal loans and a loan against fixed deposits have their advantages and limitations. Check your financial needs and your current income status and see which meets your requirements better. Keep following zarooribaathai.in for more insights.
