During an unexpected financial crisis, we often get confused regarding the type of credit we should get. There is a considerable debate about whether a Personal Loan or a loan against FD is better. While both have pros and cons, you must choose the one that best aligns with your requirements. This blog provides detailed information on the key difference between a Personal Loan and a Loan against FD. Read on to make an informed decision.
How Does a Personal Loan Work?

A Personal Loan is an unsecured credit facility where you can borrow funds without pledging any asset as collateral. It has no end-use restrictions, and you can use it for any purpose, from home renovation to medical emergencies.
However, remember that there may be repercussions if you fail to repay the loan. Your credit score may be highly impacted, making you ineligible for any credit facilities in the future, or it can increase the cost of borrowing. Alternatively, the lending institution may also file a lawsuit against you.
How Does a Loan Against FD Work?
A loan against FD is a type of credit facility that allows you to borrow money from a bank or financial institution against the value of the FD. The interest rate is lower than that of an unsecured Personal Loan, as lenders use your FD as security in case you default.
Furthermore, you can enjoy regular FD interest on the pledged fixed deposit and have the flexibility to repay the loan via instalments or lump sum. The loan tenure is equivalent to the tenure of the FD and must be repaid in full before the FD matures.
Once the loan is paid in full, you can access the fixed deposit and withdraw the required amount. However, in the event of defaults, the financial institution has full authority to liquidate your FD and recover the outstanding amount.
Also Read - How Does Age Influence Your Eligibility to Take a Personal Loan?
Personal Loan Vs. Loan Against FD: Key Differences
Following are some key differences between a Personal Loan and a loan against FD.
Factors | Personal Loan |
Loan Against FD |
Tenure of the Loan | Up to sixty months. | Till the maturity of your Fixed Deposit. |
Documents Required | Address proof, identity proof and income proof documents. | No extra documents are needed. |
Collateral Requirement | Collateral-free. |
The fixed deposit here acts as collateral and can be liquidated by the lender in the event of defaults. |
Foreclosure Charges | It varies from lender to lender. Some lenders do not levy foreclosure charges. | No foreclosure charges. |
Personal Loan Vs. Loan Against FD: Which One is Better?
Personal Loans and loans against FD have pros and cons. You must pick the one that suits your financial well-being. If you are looking for funds with lower interest rates, a loan against FD may be suitable. However, a Personal Loan may be the right choice if you need a high loan amount without pledging any collateral. Ensure you apply for a Personal from a trusted lender like Poonawalla Fincorp. Check how to apply in the next section.
How to Apply for a Personal Loan From Poonawalla Fincorp?
Step 1: Click on 'Apply Now'.
Step 2: Fill out the application form.
Step 3: Upload all the necessary documents.
Upon verification, the loan amount will instantly be credited to your bank account.
To Conclude
A loan against FD allows you to get funds at lower interest rates, but it requires you to pledge the fixed deposit as a security. The lender may liquidate your FD if you default. On the other hand, a Personal Loan is collateral-free and comes with a high loan amount, minimal documentation, and flexible repayment tenure. For a hassle-free Personal Loan application, choose your trusted lending partner, Poonawalla Fincorp. Apply now!