Loan Against National Savings Certificate


National Savings Certificates (NSC) are a government-backed investment option in India. They offer a fixed interest rate for a 5-year tenure with tax benefits. You can invest any amount starting from ₹1000 and earn compounded interest annually for the first four years. Thus, NSC is an assets and you can treat NSC as security for your loans.

A loan Against National Savings Certificates allows you to borrow money using your NSCs as collateral. This provides access to funds without breaking your investment and incurring penalties. The loan amount depends on the remaining tenure and face value of your NSC, typically ranging up to 85-90%.

Read till the end to understand how you can avail of a loan against your National Savings Certificate.

Highlights of National Savings Certificate

The table below shows the overview of the National Savings Certificate:

Feature Description
Interest 7.7% compounded annually, payable at maturity
Minimum investment ₹1,000 and multiples of ₹100
Maximum investment No Maximum Limit
Maturity 5 years
Tax benefit Deposits qualify for deduction under section 80C of the Income Tax Act

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Eligibility to Apply for Loan Against National Savings Certificate

You should meet certain eligibility criteria to secure a loan against your National Savings Certificate investments. These include:

  • Only resident Indians are eligible to apply for a loan against NSC.
  • Some leading private and public-sector banks currently provide this service.
  • The margin for a loan against NSC depends on the time left until maturity.
  • The interest rate offered on NSC investment varies depending on the individual loan applicant and the lending bank.
  • The loan tenure is equal to the remaining maturity period of the NSC used as collateral.

Documents Required for Loan Against National Savings Certificate

To apply for a loan against NSCs, an individual must provide the following documents.

  • Valid Identification Proof: A government-approved ID proof is necessary.
  • Proof of Income: Banks may require evidence of income to assess the applicant's ability to repay the loan.
  • Photographs: Recent passport-sized photographs may be needed for the application process.
  • Original NSCs: The original National Savings Certificates must be provided before obtaining the loan.

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Details of Loan Against Loan Against National Savings Certificate

Here is the detailed breakdown of the maximum loan amount, tenure, and interest rate for a Loan Against NSC:

  • Maximum Loan Amount: Banks and financial institutions typically offer loans against NSCs for up to 85-90% of the face value of your NSC.
  • Tenure: The loan tenure typically matches the remaining tenure of your NSC. This means you'll repay the loan by the time your NSC matures.
  • Interest Rate: Loan against NSC generally comes with lower interest rates compared to personal loans.

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Steps to Apply for a Loan Against National Savings Certificate

Here are the steps to treat NSC as security for your loans and apply for a loan against National Savings Certificate:

Step 1: Obtain and fill out Form NC41. This form is available online or at your local post office. Attach the original NSC certificates you want to pledge as security for the loan.

Loan Against NSC Form Transfer NSC as a Security

Step 2:Visit your local post office and submit the completed NC41 form along with the original NSCs.

Step 3: The post office will verify your application and the NSC certificates. If everything is in order, they will endorse the certificates with "Transferred security to..." followed by the lender's name, date, and postmaster's signature (all in red ink). The post office will also record the transfer in the remarks section of your application. You may be charged a fee for processing the pledge.

Step 4: Once the pledge is complete, the lender will be able to process your loan application based on the pledged NSCs' value.

Step 5: The lender will retain the pledged NSCs until your loan is fully repaid. Upon receiving a release order from the lender, the post office will transfer the ownership of the NSCs back to you.

To know more on Growing your money with NSC, you can check the linked page. Besides, you can use an NSC calculator to calculate your NSC returns with ease.

Reasons to Avail Loan Against National Savings Certificate

Here are the key reasons to consider a loan against your National Savings Certificates (NSCs):

  • Access funds without breaking your investment: Loans against NSCs allow you to access cash quickly without losing the benefits of your long-term NSC investment.
  • Lower interest rates: Loans against NSCs usually have lower interest rates than personal loans or credit card debt since the NSC acts as collateral.
  • Convenient cash flow management: A loan against your NSC can help you address unexpected expenses or take advantage of opportunities without disrupting your long-term savings.
  • Leverage your investment: You can use a loan against your NSC to fund a business venture, property down payment, or other opportunities.1
  • Minimal impact on credit score: Missed payments on an NSC loan typically don't affect your credit score, though the post office may take steps to recover the loan.

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Frequently Asked Questions

National Savings Certificate is a fixed-deposit investment scheme offered by the Indian government through post offices. It offers a fixed interest rate for a 5-year tenure with tax benefits.

Yes, you can avail a loan against your NSCs. This is called a Loan Against National Savings Certificates.

Banks and financial institutions typically offer loans for up to 85-90% of the face value of your NSC. The exact percentage may vary depending on the bank's policy and the remaining tenure on your NSC.

There are no specific eligibility criteria, but generally, you'll need to be the account holder of the NSC and meet the bank's loan eligibility requirements.

Completed application form (typically Form NC41)
Original National Savings Certificates
Identity and address proof

Loan against NSC typically comes with lower interest rates compared to personal loans. The specific rate depends on the bank's lending rate and your creditworthiness.

Processing time can vary depending on the bank, but it's usually a few business days.

The post office might take steps to recover the loan, including selling your pledged NSCs. This could result in a loss of potential interest earned.

No, you cannot transfer NSCs while they are pledged as loan security.

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