Personal loan interest rates are not as low as home or education loan interest rates. So if there was a way to get a personal loan on rates lower than what are actually available, it can significantly help reduce the interest burden on the borrower.
There is indeed a way to reduce the interest rates on personal loans. This way is to take a loan against your fixed deposits. There are quite a few benefits of this. First of all, you don’t have to liquidate your deposits. Second is that generally, personal loan eligibility is dependent on your credit history, current income and ability to repay the loan. But in case of loan against FD, the lender won’t bother much about your credit history as he already has your fixed deposit as collateral.
The biggest benefit of loan against FDs is the lower rate of interest. Personal loan interest rates can easily exceed 15%. But a loan taken against fixed deposit charge interest rate that is just 3-4% more than the rate of fixed deposit. And this can significantly reduce your EMIs.
Let’s take an example.
Suppose you need Rs 3 lac as loan. You have a FD (earning 8% interest) but you don’t want to liquidate. So you decide to take a loan against it. Your lender is giving your regular personal loan at 16%. But as soon as you show intent to borrow against FD, the rates reduce to 11%. How does it impact your EMI given the repayment period is 3 years?
Your normal personal loan EMI will be Rs 10,547.
Your EMI for loan against FD will be Rs 9822.
Though this difference of few hundreds might look small, it can give you significant savings over the 3 year period. Calculations show that you can save more than Rs 26,000 in lower interest costs.
Do not forget that in case of default in loan repayment, the lender can foreclose your deposit to recover the outstanding amount. So do consider taking a loan against FD, if you want to lower your EMIs and also don’t want to liquidate your savings.Tags: budgeting, car title loans, cash, Debts, economy, Interest Rates, loans, money, Retirement Savings