Many people have lost their income in this pandemic, due to which they are facing a money crunch. If you too are going through such a hard time, then you can overcome this problem by taking a loan on a fixed deposit (FD) or your Insurance policy.
Many banks are giving loans on FDs at less than 6% interest, which is much less than personal loans. Moreover, if you have a life insurance policy, then too you can take a loan on it. A loan is available easily and at low interest in lieu of an insurance policy. You can avail these loans through banks or non-banking financial institutions (NBFCs).
Loan against FD:
Interest on such loans
If you take a loan on FD, you will have to pay 1-2% more than the interest you receive on a fixed deposit. For example, if you are getting 6% interest on your FD, then you can get a loan at a 7-8 % interest rate.
Maximum loan against an FD
The Loan to value ratio of such loans is up to 90%, which means that you can take a loan up to 90% of the value of FD. Suppose your FD is worth 2 lakh rupees, then you can get a loan up to 1 lakh 80 thousand rupees.
How do get such a loan?
Many banks including SBI, the country’s largest bank, also provide an online facility for this. Apart from this, you can also take a loan by going to the bank. This loan is secured and hence it is easily passed by the bank without much paperwork.
Loan against Insurance
How much loan one can get against insurance?
The loan amount depends on the type of policy and its surrender value. Generally, the loan amount can be 80 to 90% of the surrender value of the policy. This loan will be available only if you have a money-back or endowment policy.
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What is the surrender value?
In life insurance, you get back some part of the amount paid as a premium when you surrender the policy after maturity. This amount is called the surrender value.
Does all insurance policies work as collateral for a loan?
No, only policies with surrender value are eligible for a loan. Surrender value is returned only in those policies which also have a share of investment along with insurance. Therefore, there will be no surrender value in the pure term plan. At the same time, traditional plans like endowment, money back and ULIPs have a surrender value.
The interest rate on such loans
The interest rate on a loan against an insurance policy depends on the amount of the premium and the number of premiums paid. The higher the premium and the higher the number of premiums, the lower the interest rate. The loan interest rate on life insurance varies between 10-12%.
In case of loan default
An insurance policy will lapse if there is a default in the loan repayment or a default in paying the premium. The policyholder will also have to pay a premium in addition to the interest on the loan taken on the policy. The insurance company reserves the right to recover the principal and outstanding interest from the surrender value of the policy.
Documents required
Along with the application form for the loan on a life insurance policy, you will have to submit all the necessary original documents of the life insurance policy. To get the loan amount, a cancelled cheque has to be attached along with the application form. When taking a loan against an insurance policy, it is necessary to sign the contract letter.