Securing a Car Loan against an FD is a strategic financial move that blends the stability of your Fixed Deposit with
the excitement of acquiring your dream vehicle. This approach to car financing allows you to leverage your Fixed
Deposit as collateral, offering a unique pathway to car ownership that is both financially prudent and accessible.
How to apply for a Car Loan against FD?
Obtaining a Car Loan against your Fixed Deposit is a streamlined process that is both quick and straightforward. With
minimal paperwork involved, you can easily transition from an applicant to a car owner in no time.
Here's how to navigate the application process for a Car Loan against a Fixed Deposit -
- Initiate contact with your chosen bank that offers a Car Loan against a Fixed Deposit.
- Complete the necessary loan application, which typically includes a form to request an Overdraft against your
Fixed Deposit.
- Provide the lender with your Fixed Deposit receipts as proof of your FD.
- The lender will process the pledged FD as collateral, and you can expect swift crediting of the loan amount to
your bank account.
Documents needed to apply for a Car Loan against a Fixed Deposit
To facilitate a smooth application process, you'll need to provide:
- Proof of identity (Passport, Voter ID, Driving License)
- Proof of residence (Utility bills, Passport)
- FD certificate or statement
- Application form
- Any other documents, as requested by the bank
Features of a Car Loan against FD
1. Immediate Overdraft facility
With this feature, you're granted immediate access to funds through an Overdraft facility. As soon as the lender
approves your Car Loan, they will make the necessary amount available, ensuring
no delay in the car purchasing process. It's like having a financial safety net that activates the moment you decide
to buy your car.
2. Retained earnings on your FD
Even as your FD backs your Car Loan, it continues to earn interest at the agreed-upon rate. This feature ensures that
your Fixed Deposit remains a growing asset,
contributing to your wealth even as you use it as leverage for a loan.
3. Flexible repayment options
Flexibility in repayment is important for a Car Loan against a Fixed Deposit. You can tailor your repayment schedule
to suit your financial landscape. Whether it's aligning repayments with your salary credits, choosing between fixed
or flexible instalments, or even settling the loan ahead of time without incurring penalties, the choice is yours.
4. Loan renewal and top-up
The option to renew your loan or top it up is beneficial. If your FD has appreciated in value, you may be eligible to
borrow more against it, giving you additional financial headroom without the need for a fresh loan application.
5. Security and peace of mind
Securing a loan against your FD means you're offering the bank a tangible asset as collateral. This security leads to
more favourable loan terms, such as lower interest rates and a more accommodating repayment framework. It's a
win-win situation, providing you with the funds you need while retaining the security of your FD.
Benefits of availing a Car Loan against an FD
Availing a Car Loan against your Fixed Deposit not only bridges the gap between you and your dream car but also
offers a plethora of financial benefits. Let's delve deeper into these advantages:
1. Lower interest rate
The most significant advantage of securing a Car Loan against an FD is the comparatively lower interest rate. Since
the Fixed Deposit backs the loan, lenders consider it less risky. This security allows banks to offer reduced rates,
unlike unsecured loans, where interest rates are typically higher to mitigate the risk factor.
2. Tenure selection
Flexibility in loan tenure is another crucial benefit. You have the liberty to select a loan tenure that best matches
the maturity period of your FD. This aids in better financial planning and budget management. It's a strategic way
to manage both your loan and savings efficiently.
3. No processing fee
The absence of processing fees is a relief to many borrowers. Typically, processing a loan involves various
administrative and handling charges, which can add up to a significant amount. However, when opting for a Car Loan
against your FD, most banks waive these fees. This exemption can lead to substantial savings, reducing the overall
cost of acquiring the loan.
4. Hassle-free application process
The application process for a Car Loan against an FD stands out for its simplicity and efficiency. Given that your FD
acts as collateral, banks require minimal documentation, making the process smoother and quicker than traditional
loan applications.
5. No need to break the FD
Perhaps one of the most appealing aspects of this loan is the ability to retain your FD. There's no requirement to
liquidate your Fixed Deposit, allowing you to continue earning interest on it throughout the loan period. This
feature is especially advantageous for those who have invested in high-interest FDs.
Car Loan against FD interest rates
Securing a Car Loan against a Fixed Deposit involves the bank treating your FD as a guarantee, typically leading to
the loan being classified as a Demand Loan or an Overdraft on the FD account.
The interest rate for this loan category is competitively priced, usually only 2% to 3% higher than the FD's interest rate. This makes it significantly more affordable compared
to the rates for standard Car Loans, which can range between 9% and 12% (sometimes even more, depending on market
conditions).
Loan amount against Fixed Deposit
Banks generally offer a loan amount ranging from 70% to 90% of the FD's value when you opt for a Car Loan against
your Fixed Deposit. The exact percentage can vary from one bank to another. Furthermore, banks might sanction a
higher loan amount if you have a strong credit history and a robust credit score, providing you with additional
financial flexibility for your car purchase.
Also Read: 7
Different types of fixed deposit in banking
Conclusion
Access the worth of your Fixed Deposit while still accruing interest through Axis Bank's Loan Against Fixed Deposit. Tailored for
every financial profile, be it salaried, self-employed or corporate entities, this facility ensures optimal funding
by providing loans up to 90% of your FD or the full valuation amount, with the lower of the two being applicable.
The loan tenure is flexible, set to the remaining period of your Fixed Deposit or up to a maximum tenure of 5 years,
based on the asset's age.
Disclaimer: This article is for information purpose only. The views expressed in this article
are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd.
and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader
for taking any financial decisions based on the contents and information. Please consult your financial advisor
before making any financial decision.
