How it works
You pledge your FD to the same bank and borrow against it, as a demand loan or, more often, an overdraft you draw from as needed. The FD keeps earning interest; you pay interest only on what you use.
- How much: commonly up to 75–90% of the deposit amount.
- Rate: usually 1–2% above your FD rate, which is often far lower than a personal loan or a credit card.
- Credit score: since the loan is secured by your own deposit, banks rely on it rather than on your CIBIL score, though they may still check it.
- Tenure: up to the FD's maturity.
Tax-saving 5-year FDs usually can't be pledged.
Example: borrow or break?
You have an FD of ₹2,00,000 at 7% with two years left and need ₹1,50,000 for four months.
- Break it: the bank cuts the rate (say by 1%) for the whole time it ran, and you lose the 7% on ₹2 lakh for the remaining term.
- Borrow against it at 8.5%: four months' interest on ₹1.5 lakh is about ₹4,250, while your FD keeps earning 7% on the full ₹2 lakh. Repay from your salary and the deposit carries on untouched.
For short needs, borrowing usually wins. For a need longer than the FD itself, compare with breaking it.
The risks
- If you don't repay by maturity, the bank adjusts the loan from your FD.
- The overdraft is still credit: missing interest payments can be reported to the bureaus.
- Don't use it for long-term spending you can't repay.
When a personal loan fits better
If you need more than your deposits can support, or you want to keep the FD free for emergencies, an unsecured personal loan may suit — compare the full cost with the EMI calculator.
For general information only, not investment advice or a recommendation. Oxon Fintech is a loan facilitation platform, not a SEBI-registered investment adviser, bank or mutual fund distributor, and does not sell bonds, deposits or funds. Rates and rules are as checked on the date above; confirm with the issuer, bank or fund house before investing. Mutual fund investments are subject to market risks; read all scheme-related documents carefully.