Car Loan against Fixed Deposit (FD)

Let us understand more about how to apply for car loans against FDs and the benefits of applying for a car loan using your term deposit in this article.

How to apply for a car loan against FD

It is very easy to apply for a car loan against your FD and there is very less documentation work. Many banks allow customers to apply for car loans through internet banking or mobile banking. This can be done by applying for an overdraft against your FD and by filling in the loan application form. All you need to do is to submit your FD receipt.

Documents required to apply for car loan against FD

1. Loan application form
2. FD receipts

Car Loan Against FD: Interest Rates Explained

When an applicant applies for a car loan using his/her FD as a collateral, the bank considers it as a demand loan or an overdraft against the FD account. In most cases, the interest rate charged for this type of loan is only 2% to 3% more than what the interest paid on the FD.

This rate of interest is much lesser when compared to the interest rate charged for conventional car loans, which range from around 9% to 12%, and sometimes even higher.

Loan Amount You Can Get Against Fixed Deposit

Most banks in India are likely to sanction about 70% to 90%of the FD amount as a loan. This, however, depends from bank to bank. Banks can also give you higher loan amount if you have a good credit history and credit score.

Loan Tenure and Repayment Process

The tenure of the loan is always the same as the tenure of the FD. The car loan can be taken for a period that is lesser than the FD tenure but not more. For example, if the tenure of your term deposit is 5 years, the loan tenure can range anywhere between 1 year and 5 years. However, it cannot be more than 5 years.

Foreclosure charges for Car Loan on Fixed Deposit

Most banks in India do not avail any penalties or foreclosure charges if the customer closes the loan earlier than the said tenure.

Benefits of taking a car loan against FD

1. Lower interest rate - To put it simply, it is much more economical to take a car loan this using your FD because you will be paying a much lesser rate of interest. This way, the cost of your loan is much cheaper than a regular loan.
2. No processing fee - In most cases, there is no kind of processing charge for availing a car loan through this method. This is a great because it will help you reduce the overall cost of the loan.
3. Hassle-free application process - Applying for this type of loan is very easy, requires very less documentation and is sanctioned faster. The application process is very user-friendly and many banks allow customers to apply online without any hassle.
4. No need to break FD - The best part of applying for a car loan this way is that you can get a loan sanctioned and at the same time continue to earn interest on the FD.