A Rs 3 Lakh Loan Against FD Costs Rs 7,938 Net. The Same Personal Loan Costs Rs 63,348.
That is not a typo. The difference is Rs 55,410 on just Rs 3 lakh over 3 years.
The reason: your FD keeps earning interest at 7.10% even while the loan runs against it at 8.10%. You pay the spread — effectively 1% — not the full rate. A personal loan at 12% has no offsetting income.
On Rs 5 lakh over 5 years, the gap widens to over Rs 2,70,000.
Yet most Indians break their FD to fund expenses, losing the interest and paying premature withdrawal penalties. Or they take personal loans at 10.5-14% while their FDs sit untouched earning 7%. The best part? FD loans require no CIBIL score at all — making them the smartest option for low-score borrowers.
Here is the complete rupee-by-rupee comparison — including the numbers banks do not put on their brochures.
Rs 3 Lakh, 3-Year Side-by-Side Comparison
| Parameter | Loan Against FD (SBI) | Personal Loan (SBI) |
|---|---|---|
| Loan amount | Rs 3,00,000 | Rs 3,00,000 |
| Interest rate | 8.10% (FD rate 7.10% + 1%) | 12.00% |
| EMI | Rs 9,407 | Rs 9,968 |
| Total interest paid | Rs 38,652 | Rs 58,848 |
| Processing fee | Nil | Rs 4,500 (1.5%) |
| FD interest earned during loan | Rs 69,498 (at 7.10% compounding) | Rs 0 |
| Net cost of borrowing | -Rs 30,846 (you earn more than you pay) | Rs 63,348 |
| Foreclosure penalty | Nil | 2-5% of outstanding |
| CIBIL impact | Minimal/None | Full reporting |
| Disbursal time | 30-60 minutes | 24-72 hours |
| Documentation | FD receipt + KYC | Income proof + bank statements + KYC |
Wait — the net cost is negative? Yes. At SBI’s 8.10% loan rate, the total interest over 3 years is Rs 38,652. But the FD continues compounding at 7.10%, earning Rs 69,498. After deducting loan interest from FD interest, you are Rs 30,846 ahead. You borrowed Rs 3 lakh, used it, and still came out with more money than you paid.
The personal loan costs Rs 63,348 total (interest + processing fee) with zero offsetting income.
Effective saving: Rs 94,194 over 3 years.
Rs 5 Lakh, 5-Year Comparison — The Gap Explodes
| Parameter | Loan Against FD (SBI) | Personal Loan (SBI) |
|---|---|---|
| Loan amount | Rs 5,00,000 | Rs 5,00,000 |
| Interest rate | 8.10% | 12.00% |
| EMI | Rs 10,154 | Rs 11,122 |
| Total interest paid | Rs 1,09,240 | Rs 1,67,320 |
| Processing fee | Nil | Rs 7,500 (1.5%) |
| FD interest earned (5 years) | Rs 2,04,578 (at 7.10% compounding) | Rs 0 |
| Net cost of borrowing | -Rs 95,338 (net positive) | Rs 1,74,820 |
| Foreclosure penalty on full repayment at year 3 | Nil | Rs 4,000-10,000 |
Total effective difference: Rs 2,70,158 on Rs 5 lakh over 5 years.
The FD interest alone covers your entire loan interest bill and hands you Rs 95,338 extra. The personal loan burns Rs 1,74,820 with nothing to show for it.
Bank-Wise Loan Against FD Rates (April 2026)
| Bank | FD Rate (General) | Loan Against FD Rate | Margin Over FD | Max LTV | Processing Fee |
|---|---|---|---|---|---|
| SBI | 7.10% | 8.10% | +1.00% | 90% | Nil |
| HDFC Bank | 7.10% | 9.10% | +2.00% | 90% | Rs 500 |
| ICICI Bank | 7.00% | 9.00% | +2.00% | 90% | Rs 500 |
| PNB | 7.05% | 8.05-9.05% | +1-2% | 95% | Nil |
| Bank of Baroda | 7.15% | 8.15% | +1.00% | 90% | Nil |
| Canara Bank | 7.25% | 8.25-9.25% | +1-2% | 90% | Nil |
| Axis Bank | 7.10% | 9.10% | +2.00% | 90% | Rs 500 |
SBI and Bank of Baroda charge the lowest margin — just 1% over FD rate. HDFC, ICICI, and Axis charge 2%. On Rs 5 lakh over 5 years, that 1% difference in margin means Rs 15,000-18,000 more in interest at HDFC versus SBI.
PNB offers the highest LTV at 95% — on a Rs 10 lakh FD, you get Rs 9.5 lakh versus Rs 9 lakh at other banks.
How Loan Against FD Actually Works — Step by Step
- You keep your FD intact. The bank places a lien (hold) on the FD. You cannot withdraw or close it until the loan is cleared.
- You get an overdraft facility linked to your savings account. Withdraw any amount up to the sanctioned limit, any time.
- Interest is charged only on the amount used, not the sanctioned limit. If you have a Rs 5 lakh limit but use only Rs 2 lakh, you pay interest on Rs 2 lakh.
- Your FD continues earning interest at the original rate for the full tenure. The interest is credited to your savings account as usual.
- No fixed EMI. Most FD loans are overdraft facilities — you repay at your pace. Some banks also offer term loan format with fixed EMIs.
- On loan closure, the lien is removed and your FD is fully accessible again.
This overdraft structure means if you need Rs 3 lakh for 2 months and then repay, you pay interest for just 2 months — approximately Rs 4,050 at 8.10%. A personal loan with 3-year lock-in would cost you Rs 6,000-10,000 in foreclosure penalty to exit early, plus higher interest for those 2 months.
Read more about personal loan prepayment penalties and how to avoid them.
When a Personal Loan Actually Wins Over Loan Against FD
Loan against FD is not universally better. A personal loan wins in these specific scenarios:
1. You Do Not Have an FD
No FD means no collateral. A personal loan is your only mainstream unsecured option. If your CIBIL score is 750+, you can get rates as low as 10.5% from SBI or HDFC.
2. You Need More Than 90-95% of Your FD Value
On a Rs 3 lakh FD, max loan is Rs 2.70-2.85 lakh. If you need Rs 4 lakh, the FD loan falls short. You would need to either supplement with a personal loan for the remaining Rs 1.15-1.30 lakh or take the full amount as a personal loan.
3. You Want to Build CIBIL History
If you are planning a home loan in 12-18 months, a personal loan with timely EMIs adds 15-30 points to your CIBIL score. FD loans often go unreported to credit bureaus.
4. Your FD is About to Mature
If your FD matures in 3 months but you need a 2-year loan, the FD loan tenure is limited by FD maturity. You would need to renew the FD and re-apply for the loan — adding paperwork and potential rate changes.
5. Tax-Saver FD
Section 80C tax-saver FDs with 5-year lock-in cannot be pledged. Personal loan is the only option here.
Loan Against Mutual Funds — The Third Option
If you do not have sufficient FDs but hold mutual fund investments, loan against mutual funds is another secured borrowing option:
| Parameter | Loan Against Equity MF | Loan Against Debt MF | Loan Against FD |
|---|---|---|---|
| LTV (loan-to-value) | 50% | 80% | 90-95% |
| Interest rate | 9.50-10.50% | 9.00-10.00% | 8.10-9.10% |
| Rs 5 lakh portfolio gives loan of | Rs 2,50,000 | Rs 4,00,000 | Rs 4,50,000-4,75,000 |
| Asset continues earning? | Yes (market-linked) | Yes (6-8% typical) | Yes (7.10% fixed) |
| Margin call risk | Yes (if NAV drops 20%+) | Minimal | None |
| Processing fee | 0.50-1% | 0.50-1% | Nil-Rs 500 |
Key differences:
- Equity MF loans carry margin call risk — if the market drops 20%+ and your LTV breaches 65%, the lender asks you to pledge more units or repay partially. FD loans have zero margin call risk.
- Debt MF loans offer the closest comparison to FD loans but at slightly higher rates (9-10% vs 8.1-9.1%).
- The FD loan wins on LTV — 90-95% versus 50-80%. You get significantly more loan per rupee of asset.
If you hold Rs 10 lakh in equity mutual funds and Rs 3 lakh in FDs, consider: MF loan gives Rs 5 lakh at 10%, FD loan gives Rs 2.7 lakh at 8.1%. Depending on your requirement, one or a combination may work.
Hidden Charges in Personal Loans That FD Loans Avoid
Personal loans come with a stack of charges that most borrowers discover only after signing. Loan against FD avoids nearly all of them:
| Charge | Personal Loan | Loan Against FD |
|---|---|---|
| Processing fee | 1-3% (Rs 3,000-9,000 on Rs 3 lakh) | Nil-Rs 500 |
| Prepayment penalty | 2-5% of outstanding | Nil |
| Late payment fee | Rs 500-1,000 per instance | Nil (interest continues accruing) |
| Bounce charges (ECS) | Rs 500-750 per bounce | N/A (no EMI mandate required for OD) |
| Annual maintenance | Rs 0-500 | Nil |
| Documentation charges | Rs 500-2,000 | Nil |
| Insurance bundling | Rs 5,000-15,000 (often forced) | Never bundled |
On a Rs 3 lakh personal loan, hidden charges can add Rs 8,000-25,000 to your total cost beyond the stated interest rate.
Tax Implications — The One Catch With FD Loans
Your FD interest is fully taxable under Section 194A, regardless of whether a loan runs against it.
| Tax Bracket | FD Rate | Post-Tax FD Return | Loan Rate | Net Spread |
|---|---|---|---|---|
| Nil (under Rs 7 lakh) | 7.10% | 7.10% | 8.10% | -1.00% |
| 5% | 7.10% | 6.75% | 8.10% | -1.35% |
| 20% | 7.10% | 5.68% | 8.10% | -2.42% |
| 30% | 7.10% | 4.97% | 8.10% | -3.13% |
At the 30% tax bracket, your effective FD return drops to 4.97%, making the net borrowing cost 3.13% — still massively cheaper than a 12% personal loan, but the advantage narrows.
TDS: Banks deduct 10% TDS if your FD interest exceeds Rs 40,000 per year (Rs 50,000 for senior citizens). File Form 15G/15H if your total income is below taxable limits to avoid TDS.
Even at the highest tax bracket, the net cost of FD loan (3.13% effective) is less than one-third of a personal loan cost (12% with zero tax benefit for personal use).
The Decision Framework
Step 1: Do you have an FD worth at least 105% of the loan you need?
- Yes — Take loan against FD. Stop here.
- No — Go to Step 2.
Step 2: Do you have mutual fund investments?
- Yes, equity MFs — You can borrow 50% of portfolio value at 9-10.5%
- Yes, debt MFs — You can borrow 80% of portfolio value at 9-10%
- No — Go to Step 3.
Step 3: Take a personal loan, but:
- Check your CIBIL score first — rates vary from 10.5% (750+ score) to 24% (650 score)
- Negotiate processing fee — most banks waive or reduce on request
- Avoid insurance bundling — it is optional despite what the loan officer says
- Choose shortest comfortable tenure — prepayment penalties make early exit costly
What if You Need More Than Your FD Value?
A common situation: you have a Rs 3 lakh FD but need Rs 5 lakh. Two approaches:
Option A — Split the borrowing:
- Rs 2.70 lakh as loan against FD at 8.10%
- Rs 2.30 lakh as personal loan at 12%
- Blended rate: approximately 9.80%
- Total interest over 3 years: Rs 52,000 (versus Rs 98,000 for full Rs 5 lakh personal loan)
Option B — Full personal loan:
- Rs 5 lakh at 12%
- Total interest over 3 years: Rs 98,080
- Simpler to manage but Rs 46,000 more expensive
The split approach saves Rs 46,000 but requires managing two accounts. If your FD is under Rs 1 lakh, the administrative effort may not be worth the saving.
How to Apply for Loan Against FD
SBI (Lowest Rate — 8.10%)
- Log in to SBI YONO app
- Go to Loans then Loan Against FD
- Select the FD and enter loan amount (up to 90%)
- Overdraft facility is activated instantly
- Withdraw from linked savings account as needed
HDFC Bank
- Visit NetBanking then Loans then Loan Against Fixed Deposit
- Select FD and choose OD or term loan format
- Sanctioned within 4 hours (online) or same day (branch)
- Processing fee: Rs 500
Other Banks
Visit the branch with your FD receipt and KYC documents. Most banks process within 30-60 minutes. Some (PNB, Bank of Baroda) require branch visit only — no online facility yet.
Bottom Line
Loan against FD is the cheapest borrowing option available to any Indian with a fixed deposit. At 8.10% with your FD earning 7.10%, the net cost is 1% — or even negative after compounding. Personal loans at 12% cost 12x more in net terms. The only reasons to skip FD loan are: you do not have an FD, you need more than 90-95% of its value, or you specifically want CIBIL history building.
If you have an FD and need money — pledge it, do not break it.
Explore more on savings and banking for FD rate comparisons across banks.
For larger amounts (Rs 15 lakh+), a loan against property at 9.35–12% may be cheaper than a personal loan — but the hidden charges and SARFAESI seizure risk make it a very different product from the low-risk FD loan.