What is Car Loan against Fixed Deposit?

3 min read Mar 14, 2024

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 -

1. Initiate contact with your chosen bank that offers a Car Loan against a Fixed Deposit.
2. Complete the necessary loan application, which typically includes a form to request an Overdraft against your Fixed Deposit.
3. Provide the lender with your Fixed Deposit receipts as proof of your FD.
4. 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.