How a loan against an FD is priced
A loan against a fixed deposit is secured on the deposit, which stays in place and usually keeps earning its own rate. The loan rate can be the deposit rate plus a margin that the lender sets, so a deposit earning 7% with a 2 point margin gives a 9% loan. The lender also caps the loan at a share of the deposit. The margin and the limit are each lender's own, so you enter them from your offer.
A term loan is paid back in equal monthly instalments over a set time, and the interest each month is worked out on the balance. An overdraft against the deposit charges interest only on the amount you use, for the days you use it, so an unused overdraft costs nothing. The calculator charges overdraft interest as simple interest on a 365-day year.
The loan cannot run longer than the time left on the deposit, so the calculator stops you entering a longer one. Because the deposit keeps earning, the real extra cost of borrowing is the loan interest less what the deposit earns on the same amount. The calculator shows that as the cost above the deposit rate.
Worked example
A ₹10,00,000 deposit earning 7% a year with a 2 point margin gives 9.00%. With a lender limit of 75%, you can borrow ₹7,50,000.00. Using ₹7,50,000 of an overdraft for 12 months costs ₹67,500.00 in interest, while the deposit earns ₹52,500.00 on the same amount, so the real cost of borrowing is ₹15,000.00, which is the 2 point margin on ₹7,50,000.
Using the same overdraft for only 182 days costs ₹33,657.53. As a term loan over 12 months in equal instalments, ₹7,50,000 costs ₹65,588.61 a month and ₹37,063.29 in interest, of which ₹8,236.29 is above the deposit rate.
A loan of ₹8,00,000 is ₹50,000.00 above the 75% limit on this deposit, so the calculator shows the shortfall. Ask your lender for its limit, because it varies.
To see what the deposit grows to and compare instalments with interest only, use the fixed deposit loan calculator.
The FD loan calculator covers the loan against a deposit from another angle.
Things to check with your lender
Ask what share of the deposit the lender lends, the margin over the deposit rate, whether interest is simple or charged on a reducing balance, and what happens to the deposit if you miss a payment. Compare the cost with simply breaking the deposit, and ask your lender what that would cost you in interest and any penalty.
Inputs for the FD against loan interest rate calculator
Loan type
A term loan is paid back in instalments. An overdraft charges interest only on the amount you use.
Fixed deposit amount
The amount you hold and would pledge as security for the loan.
Rate the fixed deposit earns (per year)
The yearly rate on the deposit. The rate shown is only an example.
Points the loan costs above the deposit rate
The loan rate is the deposit rate plus this margin. Use your lender's figure.
Most the lender lends against it
The share of the deposit you can borrow. Use your lender's figure.
Time left on the fixed deposit
The loan cannot run longer than this.
Amount you borrow or use
The loan you take, or the overdraft you use.
Loan period
How long you borrow, in the units chosen next. Instalments need months.
Loan period is in
Months suit a term loan. Days suit an overdraft you use for a short time.
CALCULATOR QUESTIONS
Loan against FD interest rate calculator questions
What interest rate is charged on a loan against an FD?
It can be the deposit rate plus a margin the lender sets, so it is a little above what the deposit earns. Enter your lender's margin to see the rate.
How much can I borrow against my FD?
A share of the deposit that the lender sets. The calculator multiplies the deposit by the limit you enter.
What is the real cost of borrowing against an FD?
The loan interest less what the deposit earns on the same amount, because the deposit keeps earning. In the example it is ₹15,000.00.
How is an overdraft against an FD charged?
Interest is charged on the amount you use for the days you use it. An overdraft you do not draw on costs nothing in interest.
Can the loan run longer than my deposit?
No. The loan cannot outlast the time left on the deposit, and the calculator shows a message if you try.