How To Use Your Fixed Deposit To Fund A Car?

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One of the first investment that an individual almost always tends to make is a fixed deposit. Seldom does one see another investment ahead of fixed yielding instruments. The one good thing about these deposits, is that they are liquid and you can take a loan against these fixed deposits.

How To Use Your Fixed Deposit To Fund A Car?
Now, say you wish to buy a car, but decide that you might want to take a car loan for the purpose. What we suggest is avoid taking a car loan and go for a loan against a fixed deposit - that is if you have one. So, take a overdraft against the fixed deposit and pay for the car.

How does it work?

You can avail a loan of as much as 85 per cent, against your fixed deposit. It is actually, not a loan, but just an overdraft.

So, you would probably end-up paying 2-2.5 per cent, over and above the interest rate contracted on the FD.

If your Bank fixed deposit fetches you an interest rate of 8 per cent, you might get the loan for around 10 per cent.

Now, there are a few things you should remember. Each bank will give you an overdraft against the bank's own deposit. For example, Axis Bank is clear that the overdraft would be against the bank's own FD.

What are the advantages of overdraft from a FD, rather than an auto loan

There are plenty of advantages. The first is that you do not have any processing fee. So, straight away you save money. The second is that you can pre-pay, which is another big advantage. There are no prepayment charges.
The third is that you remain the sole owner of the vehicle.

Remember, do not break the deposit without any reason, if you can afford to pay the EMI. These days interest rates have dropped and it would be good to talk to several banks before you decide.

In the end, you might be able to get a much better rate of near 2 per cent, over and above the fixed deposit interest rate.

Read more about: fixed deposit, car loan
Story first published: Wednesday, March 30, 2016, 10:12 [IST]
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