What is Loan against Deposits?
All financial entity, banks or non-banks, can accept fixed deposits from customers. The interest rate and the lock-in period might vary depending on the decision of the financier. Loan against deposits are basically loans taken against fixed deposits. In most cases, a certain percentage of the fixed deposit can be taken as a loan. Exceptional loan management software (Loan Against Deposits Software) used by top lending organisations in the country to offer loan against fixed deposits quickly & effortlessly. Loan against deposits software is working according to the basic criteria like interest rate, application and repayment.
While the original fixed deposit continues to earn interest, the customer pays an interest on the loan amount. In case of banks, the loan amount is provided as an overdraft if the customer holds an account in the same bank. In case of non-bank entities, it is given as a loan.
These are secured loans which work similar to personal loans. However, in most cases, the interest rate is much lower than personal loans.
What is the process involved?
Below are the things worth noting regarding loan against deposits:
Tenure of loan:
There is no fixed tenure for the loan. In most cases, it is same as the maturity of the fixed deposits. At the time of maturity, if the loan amount has not been fully paid back, the outstanding amount is deducted from the fixed deposit and the remaining amount is given back to the customer.
The interest rate is usually 2 to 2.5% more than the fixed deposit interest rate. It is to be noted that in case of banks where the amount is sanctioned as an overdraft, the interest is charged only on the utilization amount and not on the full sanctioned amount.
Amount of loan:
As mentioned earlier, the amount of loan varies and is a certain percentage of the fixed deposit. Usually, it is around 75-90% of the fixed deposit amount.
There is no tax benefit for salaried individuals. However, for individuals who are into business, if the fund is being used for business purposes, then the interest being paid is eligible for tax deduction as a business expense.
What are the challenges faced by Financial Institutions?
Though offering loan against deposits might seem quite secure and seem like a relatively easier loan product to handle, it does come with its own set of complications which is capable of inducing a powerful migraine to a financial institution. Here are the few common challenges faced by financial institutions:
Despite the fact that the loan product follows a common principle of using the deposits made by the borrowers as collaterals, the process varies with the financial institutions. While some offer loans only against fixed deposits, some banks and lenders offer loans against mutual funds, LIC policy, and even recurring deposits.
So, the complicated nature of this process might have an impact on the processing time of a loan application owing to the varying nature of legal complications rules and policies that need to be taken care of.
Managing and keeping track of customer’s liquidity could get tedious if the representatives had to hop between different software and interfaces every time. The lack of an integrated solution which offers a complete view of a customer’s account and deposits could exert a negative effect on the productivity of staff members and even increase the proximities of errors.
Few lending Institutions may not be capable of investing a huge sum in IT expenses to procure a high-end banking software. Instead, they may resort to using centralized software and databases which might affect the operational efficiency with its huge dependency on manual interventions.
The cumbersome paper documentation and excel sheets offer flimsy security and compromise the privacy of confidential loan documents. In addition to that, the time taken to process a loan might be high due to the increase in errors and time wasted in the keeping up with the complex workflow.
Why CloudBankIN for Loan Against Deposits Software?
CloudBankIN is a prominent financial loan against deposits software used by leading banks and lending institutions to get a 360-degree view on their customer’s account and complete loan portfolio. The following features of CloudBankIN make it the most recommended loan against deposits software for financial institutions of all sizes:
- CloudBankIN cloud-based nature and seamless consolidation of multiple modules from accounting to reporting to offer a complete picture and enhances the operational efficiency of a financial institution.
- The document management system and accounting modules reduce the manual paperwork and interventions, optimizes the workflow and speeds up the loan approval process.
- The pay-as-you-go model of CloudBankIN is cost-effective as it offers financial institutions a chance to use top-end banking software with a nominal investment reducing the operational IT expenses considerably.
- CloudBankIN is a flexible software which comes with a configurable rule engine that could be used to create a parameterized environment for simulating an auto-decisioning mechanism and reduce the loan processing lifecycle.
- Our predictive analytical engine offers complete visibility about a customer’s loan account in an interactive dashboard which could be used by a financial institution to make insightful business decisions that drive profits and unlock potential opportunities.
Take real-time decisions for your loan products and improve the operational efficiency of your firm with our leading lending software. Schedule a demo today to simplify even the process of offering loan against deposits software.