— Personal loan or Over draft against FD or RD which one should you take?
— FED Rise – Over Draft facility against Recurring Deposit, by Federal Bank
Indian Financial system is opening up for loans. After Overdraft on Fixed Deposit and Gold, Banks have started offering Overdraft facility against Recurring Deposits. This Bank offers loan against recurring deposits.
Loan against fixed deposits, Gold Loan OD is getting increasing popular for emergency needs or small business expenses owing to its low cost and efficient options for depositors. One more low cost loan available is Loan against Recurring Deposits.
Personal Loan Vs. Over draft against Fixed deposits/ Recurring deposits
personal loan comes with minimum threshold, processing fee, and pre-payment charges. It also cheks back the repayment history of the borrower
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Over-draft facility has no processing fee, lower interest cost, no processing charges and flexible payment option. The limitation of OD is its capped at 90% of the FD or recurring deposit maturity amount. The repayment term is also capped at the tenure of the deposit.
| Loan conditions | Personal Loan | OD against FD | OD against RD |
| Minimum limit | Yes | No | No |
| Maximum Limit | Varies | 95% of Fixed Deposit* | 90% of maturity amount |
| Flexible payment option | No | Yes | Yes |
| Tenure | Pre-decided | Upto the maturity date | Upto the maturity date |
| Intereste rates | High | FD Rates+1-2% | RD Rates + 1-2% |
| Non-payment of EMI | Charges upto 2% of EMI amount | Flexible payment upto the maturity date | Flexible payment upto the maturity date |
| Loan processing Fee | Yes | No | Minimum |
| Pre-closure Charges | Yes | No | No |
| Credit History Mandatory | Yes | No | No |
| Documentation | Yes | No | Minimum |
In this post, we will take the example of Federal Bank’s Over draft Facility on Recurring deposit – Fed Rise. Fed Rise is an OD facility against recurring deposits. Federal Bank is one-of the first movers among Indian Banks in the Over Draft facility against Recurring deposits. Let us look at its features.
Fed Rise is an overdraft facility against recurring deposits
–Allows OD Facility upto 90% of the maturity value
—Overdraft Limit – 90% of the balance outstanding in recurring deposit can be availed by the customer at any point of time
—Loan Tenure – Upto Maturity or 120 months, which ever is lower
–Minimal documentation and Quick processing
–Facility to withdraw the amount through ATM, internet banking, POS and all other channels by linking to savings account balance.
–Repayment can be made as lumpsum
–Customers including NRI’s who have recurring deposits maintained with Federal Bank in the name self or third party are eligible.
—Interest rates – For own Deposit: RD Rates rate+2.00%, (approximately) for third party RD Rates +2.50%, whichever is higher – Please check the Federal Bank Website fo more details on Fed Rise
—Processing Fee – For loans up to Rs. 10L : 0.15% of the sanction limit, subjected to a minimum of Rs 250/- . For loans above Rs 10L : 0.25% of the sanction limit
FED Rise – Incase of Default – If the customer is defaulting in monthly installments in RD consecutively for 3 months, the limit shall be set off against RD
In this post I have taken the details of Federal Bank, however other Banks such as State Bank of India and ICICI Bank also has such option.
Loan against Recurring Deposit, ideal for business and emergency purpose, next best option after Overdraft against Fixed Deposits.
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