Need funds for higher studies but don’t want to break your Fixed Deposit (FD)? You can take an education loan against your FD and use it as collateral without having to liquidate it. These loans let you borrow up to 90–95% of the FD value at interest rates only 1–2% higher than your FD rate, making them one of the most affordable secured options.
Students choose FD-backed loans for their speed, safety, and lower cost compared to unsecured borrowing. This blog provides an overview of how these loans work, their eligibility requirements, necessary documents, and the pros and cons so that you can make an informed decision.
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What Is an Education Loan Against FD?
An education loan against a Fixed Deposit (FD) is a type of secured loan where you pledge your FD (or a portion of it) as collateral, and the bank lends you up to 90–95% of the FD value without having to break it. You're essentially using the deposited funds as a security net while the FD continues to earn interest, reducing your overall borrowing cost.
How To Apply Education Loan Against FD?
Here’s a simple, step-by-step guide to help you apply, whether online or offline:
1. Use FD in Your Name Held with the Same Bank
First, ensure the Fixed Deposit you plan to pledge is registered under your name or the co-applicant’s name and is held with the same bank where you’ll apply for the loan. Banks such as SBI, ICICI, HDFC, Axis, and Bank of Baroda offer finance of up to 90% of the FD value as an education loan against the FD.
2. Choose Your Mode: Online or Offline
Online (Best for ICICI Netbanking Customers):
- Log in to your bank’s internet banking app.
- Navigate to the “Loan Against FD” or “Insta Education Loan” section.
- Select the FD, choose your required loan amount (up to 90%), and select the repayment tenure (which must not exceed the FD maturity).
- View EMI & interest options, authenticate with OTP, and generate a provisional sanction letter instantly (applicable for ICICI’s Insta Education Loan)
Offline (Standard for SBI, HDFC, Axis, etc.):
- Visit your nearest branch with the FD and documents.
- Request an application form specifically for an education loan against an FD.
- Banks like SBI offer overdraft loans against FD with zero processing fee and no prepayment penalty.
3. Verification & Lien Marking
After preliminary approval, the bank will mark a lien on your FD, legally blocking it until full repayment. This process ensures the FD remains untouched while you continue to earn interest.
4. Submit Final Documents Required for Education Loan Against FD
Provide these essential documents to finalise the loan disbursal:
- An admission letter or the fee structure from the university
- Completed application form
- KYC documents (PAN, Aadhaar, passport)
- FD certificate and lien documents
- Co-applicant’s income proof (salary slips/ITR) if applicable
5. Loan Disbursal & Repayment Setup
Once your documents are verified and the lien is in place, the bank disburses the loan.
- For education loans, funds are usually released directly to the institution or to your designated bank account.
- Interest is charged only on the principal you actually use, not on the entire FD amount.
Get 40 Lacs No Collateral Education Loan
Applying for an education loan for the first time? Our guide on how to apply an education loan can be your starting point.
Education Loan Against FD Interest Rate and Other Features
Education loans against Fixed Deposits (FDs) offer a unique way to fund studies without breaking your savings. Here’s what makes them stand out and how major banks compare:
Advantages of Taking an Education Loan Against FD
Taking a student loan against a Fixed Deposit is one of the most hassle-free ways to fund higher education. Here’s why:
1. Low-risk & faster approval:
Since banks already hold your FD, the loan is considered a safe investment. Approvals are much quicker compared to property-backed loans. Example: ICICI’s Insta Education Loan can be sanctioned in minutes if your FD is already with the bank.
2. FD continues to earn interest:
Even though it’s pledged, your FD continues to generate returns. This offsets some of the loan interest, effectively reducing the cost of borrowing.
3. Lower or zero processing fee:
Many banks waive or charge negligible fees if the FD is held with them, unlike property loans, where valuation charges are typically applied.
4. No prepayment penalty:
You can close the loan early without extra charges. For students expecting scholarships or family support later, this flexibility is a big plus.
5. Ideal for parents who don’t want to pledge property:
Not every family is comfortable with mortgaging real estate. An FD-backed loan is much simpler and less stressful.
6. Works for gap-year or non-standard cases:
Even if a student took a break or is switching fields, the FD itself is substantial collateral. This increases approval chances when banks are otherwise hesitant.
Who it suits best: Families with existing FDs (built for savings or tax purposes) who want a quick, collateral-light option without touching property.
Get an Education Loan with Higher Chances of Approval
Limitations You Should Know
Despite its perks, an education loan against an FD has some limitations that students must plan around:
1. Loan amount restricted by FD value:
Typically capped at 85–90% of your FD. Example: If you need ₹30 lakh for a U.S. Master’s but your FD is ₹20 lakh, you can only get ~₹18 lakh. You’ll still have a funding gap.
2. Shorter repayment flexibility:
The loan tenure is linked to the FD maturity. If your FD matures in 5 years, your loan cannot exceed that maturity date. This may result in higher EMIs compared to a regular education loan, which typically offers 10–15 years of repayment.
3. Liquidity risk if you default:
The bank can liquidate the FD to recover dues; you lose the deposit and its future interest earnings.
4. FD returns feel “locked”:
Even though interest accrues, the FD remains blocked until the loan is repaid in full. Families who depend on FD maturity for future expenses (like retirement or marriage) may face liquidity issues.
Who should be cautious: Students needing huge loan amounts or families that rely heavily on FD maturity for other life goals.
FD-Backed Loan vs. Other Education Loan Options
Not all education loans are created equal. Here’s how loans against FD stack up against other popular choices:
Tax Benefits (Section 80E)
One of the significant financial benefits of an education loan is the tax deduction available under Section 80E of the Income Tax Act.
- Deduction on interest paid: The entire interest component of your education loan (including FD-backed loans) is deductible from taxable income.
- Duration: Deduction is available for up to 8 years (starting from the year you begin repaying interest).
- No deduction on FD earnings: The FD continues to earn interest, but that income is taxable. Only the loan interest repayment qualifies for a deduction.
Example:
If your annual loan interest is ₹2.5 lakh, and you are in the 30% tax bracket, you save ₹75,000 in taxes each year. Over 5 years, that’s a saving of nearly ₹3.75 lakh.
Practical Tips Before Choosing an FD-Backed Loan
Before pledging your FD, keep these points in mind:
- Apply with the same bank where the FD is held
- Check the spread. Compare the loan rate vs. the FD interest rate. If FD gives 6% and the loan is 8%, the effective cost is only 2%.
- Plan tenure smartly. Ensure your FD maturity matches your repayment timeline. Otherwise, you may be required to pay higher EMIs.
- Ask about partial withdrawal. Some banks allow for a partial lien release if you prepay a portion of the loan.
- Combine with a top-up loan if needed. If FD doesn’t cover the full education cost, you can add a top-up unsecured loan.
- Compare across banks/NBFCs. Don’t assume your FD bank is the cheapest; check rates elsewhere as well.
An education loan against an FD is one of the safest, fastest, and most cost-effective ways to finance higher studies. With minimal paperwork, quick approvals, and continued FD interest earnings, it offers a smart alternative to property-backed or high-cost unsecured loans.
However, its limitation lies in the loan amount cap and shorter tenure. For students going abroad with higher tuition and living costs, FD loans often need to be supplemented with additional funding sources.
This is where lenders like Propelld step in. If your FD doesn’t cover the full expense, or if you’re looking for collateral-free, flexible repayment loans with fast approval, Propelld can be your go-to option. Apply with Propelld today and secure finances for your higher studies.
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