One of the most vital parts of personal finance is learning how to manage one’s financial resources properly. It takes a disciplined financial lifestyle, including several precise choices and wise decisions, to manage your cash flow efficiently. Since banking systems grew into an organized sector, the times have changed, and in this quickly developing economy, taking out a loan has become a much easier process. This fact is because the banking industry has gotten more organized. An unexpected need for cash can drive you to sell your possessions, even if it means doing so at a lower price than they are worth. However, you may choose between a Loan against Fixed Deposit and a Personal Loan after weighing their advantages and disadvantages.
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What is a Personal Loan Without Collateral?
People take personal loans while attempting to overcome financial issues or even when funding a costly endeavour. These loans generally get repaid over a few months to several years in monthly payments. However, since standalone personal loans are unsecured loans without any security, they are faster depending on the specific case or the financial institution. Unsecured loans usually have higher interest rates than loans secured by fixed deposits. With a standalone instant personal loan, if you are unable to pay the loan in the stipulated time, then your CIBIL score gets impacted adversely.
What is a Loan Secured by a Fixed Deposit?
A secured loan, also known as a loan against a fixed deposit, allows borrowers to use their fixed deposits as collateral and get a loan in exchange. The fixed deposit amount determines the loan amount, which can be anywhere from 90–95% of the deposit amount. These loans have interest rates 1% to 2% higher than the interest rates of fixed deposits. If your credit score is poor, you don’t meet the income requirements, and you don’t have anything else to put up as collateral for a secured loan, you may not be able to apply for a personal loan against your fixed deposit. Overdraft or demand loans are the most common forms of these loans.
Why Get an Instant Personal Loan?
A little over a decade ago, to acquire the loan you sought, you were obliged to go through a time-consuming and complicated application procedure and then wait for many months. However, you may now apply for an instant personal loan online and have the funds sent directly into your bank account almost immediately. Moreover, by utilizing online eligibility calculators, you can determine your loan eligibility. In addition, the lenders can quickly verify your credit score and decide whether or not you qualify for the loan.
Comparing Loans against Fixed Deposits and Personal Loans:
1) Documentation Needed:
A personal loan is unsecured, not backed by any security, and needs fewer supporting papers to be submitted to verify your identity and have your loan application granted. You must provide the required documentation when applying for a personal loan, including verification of your age, residence, income, and other pertinent papers. However, banks often do not need much documentation for an online personal loan against a fixed deposit, which is secured in nature and guaranteed by your fixed deposit account as collateral. But they may take longer compared to unsecured loans.
2) Processing Charge:
A financial institution levies a nominal processing fee when a personal loan disbursement happens. Any bank, when you apply for a personal loan, will charge you a processing fee for the loan, which ranges from 0.5 to 2%. However, you are not required to pay a processing charge if you are taking out an instant loan against a fixed deposit by most financial institutions.
3) Maximum Loan Amount:
The maximum loan amount varies between a standalone personal loan and a loan secured by a fixed deposit. The maximum loan amount when you apply for an instant loan gets determined by the applicant’s profile, repayment history, and income profile. Depending on your profile, credit score, and yearly income, you may get approval for a greater or lesser loan amount. However, the loan amount when you apply for a loan against a fixed deposit is based on the fixed deposit amount. Mostly, up to 90% of the fixed deposit amount may get approved as the maximum amount. Be aware that fixed deposit loan amounts vary across financial institutions and mostly rely on their discretion.
4) Loan Prepayment Penalties:
Banks often impose a small prepayment fee on standalone personal loans since they lack collateral. However, for a loan against a fixed deposit, these institutions also may charge a prepayment penalty.
Documentation Required for a Loan Secured by a Fixed Deposit:
An instant personal loan online against a fixed deposit includes essential paperwork like:
- Proof of income
- Proof of your identity
- Proof of address
- Bank details
- Salary slip for the last three months
- Bank Statements for the last six months
- In the case of self-employed applicants, the last ITR fillings are required
Some Uses of an Instant Personal Loan:
Personal loans are unsecured loans; thus, anybody may get one very easily. Many people lack real estate and other forms of collateral. In difficult financial circumstances, personal loans might be a solution for these individuals. The following are frequent applications for personal loans:
- Debt consolidation
- Home Renovation
- Financing wedding costs
- Payment for individual purchases
- Paying for travel charges
- Expenses for medical care
- Purchasing the newest electronic devices
To Sum Up:
Occasionally, applying for independent personal loans online might be more convenient and effective than loans secured by a fixed deposit. However, this is purely relative since it relies on the particular amount you need to borrow and your financial borrowing limits. A loan against a fixed deposit may be a viable choice if you have a fixed deposit balance that corresponds to your needs and is accessible in your account. However, when a loan against a fixed deposit cannot meet your amount and duration needs, a personal loan will definitely help. An unsecured personal loan is often the right option if you need a little amount that you can return quickly.