Loan Against FD vs Personal Loan

Published: 3 December 2025

When you are faced with an urgent money requirement, choosing the right type of loan becomes important. Many borrowers find themselves deciding between using their fixed deposit to get a loan against FD or applying for a personal loan without any collateral. Both options offer quick access to funds, but they work very differently in terms of interest rates, eligibility, processing time, and long-term financial impact.

Let’s explore a clear comparison of a loan against FD vs personal loan and understand which option suits your financial needs.

How Does an FD Overdraft vs Personal Loan Work

Loan Against FD (secured): In this loan, you pledge your fixed deposit as collateral and borrow up to a percentage of the deposit value. Interest is usually charged at a small margin over the FD rate. This is an example of a secured vs unsecured loan comparison where a loan against an FD is secured.
Personal Loan (unsecured): Here, you borrow without collateral. Interest rates are higher and depend on your credit score and lender. This makes it an unsecured retail credit product.

How Interest Rates Are Changing Loans and Deposits in 2025

In 2025, most banks and NBFCs are offering stable and competitive interest rates across both personal loans and loans against FDs. A secured loan against an FD usually comes with a lower rate because the lender has your deposit as security, while personal loan rates are higher due to the unsecured nature. This is why loan on FD benefits stand out. This gap makes loans against FDs more affordable for short-term needs.

Here is a comparison of a loan against FD vs a personal loan:

Feature	Loan against FD	Personal loan
Security	Secured by FD	Unsecured
Interest rate	Lower, it is typically the FD rate + a small margin (typically 0.5 to 2% approx)	Higher, as it depends on credit score, typically 9 to 20%+
Speed	Fast as the lender already has your FD	Fast to moderate, as it depends on checks and CIBIL
Documentation	Minimal	More paperwork and eligibility checks
Impact on FD	FD remains intact; you keep interest	No impact on any FD unless you withdraw it
Best for	Short-term needs, low-risk borrowers	Larger expenses, if you lack suitable collateral

When to Choose Between a Loan Against FD and a Personal Loan

These situations will help you decide between an FD overdraft vs personal loan:

1. Medical Emergency

If you need cash quickly and have an FD, a loan against an FD is better because it is fast, low-cost and requires minimal paperwork. This makes it suitable when time and cost matter.

2. Business Shortfall or Working Capital

For short-term working capital, you might prefer a loan against an FD if the amount needed is within the FD-backed limit. If you need a larger sum or longer tenor, a personal loan may be necessary.

3. Education Fees

For short-term courses or urgent fee payments, a loan against an FD works well because it is quick and affordable. For higher education or multi-year programmes, a personal loan may be more suitable.

Pros and Cons of a Loan Against FD vs Personal Loan

Choosing between a Loan Against Fixed Deposit (FD) and a Personal Loan can be tricky, especially when both offer quick access to funds. Here’s a clear breakdown of the pros and cons to help you make the right decision.

Benefits and Drawbacks of a Loan Against Fixed Deposit (FD)

A Loan Against Fixed Deposit (FD) is one of the easiest ways to access quick funds without breaking your savings. Before you choose this option, here’s a simple breakdown of its key pros and cons.

Pros of Loan Against Fixed Deposit:

Lower interest cost.
Faster processing and minimal documentation.
Earn interest as the FD stays active.
Less dependent on your credit score.

Cons of Loan Against Fixed Deposit:

FD value decides the loan limit.
FD stays locked until loan closure.
Not suitable for very large loan amounts.

Pros and Cons of Personal Loan

A personal loan is one of the most commonly used credit options for urgent or planned expenses. But before you apply, it’s important to understand both the benefits and drawbacks. Here’s a quick breakdown to help you decide.

Pros of Personal Loan:

Higher loan amounts are possible.
Flexible use and longer tenures.
No need to pledge assets.

Cons of Personal Loan:

Higher interest rates.
Processing fees and stricter checks.
Missed EMIs affect your credit score.

FD Overdraft vs Personal Loan: Which One Should You Choose

An FD overdraft gives you flexible access to money. You can withdraw any amount within the limit and pay interest only on what you actually use. This is useful for recurring or unpredictable expenses.

A personal loan gives you a fixed lump sum and fixed EMIs, making it better for planned, one-time expenses.

So, when comparing FD overdraft vs personal loan:

Choose an FD overdraft if you need flexible and repeated access to funds.
Choose a personal loan if you need a one-time and full amount upfront for a planned expense.

Best Loan Options Based on Your Situation

Choosing the right type of loan depends on your financial need, your credit score and whether you already have an FD. Here are recommendations for different types of borrowers:

If you have a good FD and need quick funds, you can choose a loan against an FD. Here:
Interest rates are lower
Approval is quick
You can close the loan anytime without much hassle
If your CIBIL score is low, a secured loan against an FD is a better choice. Here:
Approval is easier because the FD works as security
Personal loans may get rejected or may come with higher interest rates
If you need a loan amount larger than your FD value, you need to go for a personal loan or a business loan. Here:
These loans offer higher amounts
You can apply through a channel partner like My Mudra to compare options and get better rates
If you need flexible funds on a recurring basis, you can choose an FD overdraft facility. Here:
You can withdraw money whenever required
You pay interest only on the amount you actually use

What You Should Do Next

Check your FD details first: See the tenure of your fixed deposit and confirm if your FD is eligible for a loan. Banks list these rules on their FD product pages.
Compare interest rates: Look at the interest margin for a loan against an FD and compare it with the personal loan rate you are likely to get. Your CIBIL score band will help you estimate your personal loan rate.
Use a channel partner: Platforms like My Mudra can help you compare offers from many banks and NBFCs in one place and get pre-approval options faster.
Choose the right loan based on your need: Pick a loan against FD for urgent medical needs or short-term business expenses. Choose a personal loan for bigger, long-term expenses after checking the total cost carefully.

Conclusion

If you already have a fixed deposit and need money quickly, a loan against an FD is usually the better choice because it is faster, easier, and cheaper. However, if you need a larger amount or do not have an FD to pledge, then a personal loan becomes the only option, even though it may cost more.

In the end, choosing between a loan against FD vs an instant personal loan depends on how much money you need, how quickly you need it and what financial assets you already have.

Also Read:
- RBI Approved NBFC Loan Apps (Complete 2025 List)
- Fake Loan App List (2025 – Apps Banned or Flagged by RBI)

Frequently Asked Questions

What is the main advantage of a loan against an FD over a personal loan? +

The main advantage is lower interest cost because the loan is secured by the FD. The lenders usually charge a small margin above the FD rate.

Will taking a loan against my FD stop my FD interest? +

No. Typically, the FD continues to earn interest. It is encumbered as collateral until you repay the loan.

Which is quicker to get approved, a loan against an FD or a personal loan? +

A loan against an FD is usually quicker because the bank already holds your deposit, and verification is minimal. Personal loans need credit checks and more documentation.

How does my credit score affect the choice? +

If your credit score is low, a secured loan against an FD is easier and cheaper to obtain than a personal loan, which may come with higher rates or rejection.

Can I get an overdraft against FD instead of a personal loan? +

Yes. An overdraft/FD-overdraft gives a revolving credit limit secured by your FD. It suits recurring or intermittent cash needs better than a fixed-sum personal loan.

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Anjali Singh Assistant Manager

Hey there, I'm Anjali Singh. With over 6 years of experience in finance, I specialize in creating content on banking, loans, and financial planning. My goal is to simplify complex financial topics and help readers make informed decisions through my articles.