Financing a car can be a significant milestone to achieve. While saving up for a car purchase is ideal, unforeseen circumstances or a pressing need for a vehicle might necessitate exploring alternative financing options. A car loan against FD emerges as a viable solution in such scenarios, leveraging your existing savings to secure a loan for your dream car. This comprehensive guide delves into the intricacies of car loan against FD. It explores its benefits, features, application process, and crucial considerations.
Benefits of a Car Loan Against FD
A car loan against FD offers several advantages over traditional car loans, making it an attractive option for many borrowers:
Reduced Interest Rates: While a to daily vehicle FD comes with lower Interest rates, the car loans against FD typically do so. Once your Fixed Deposit (FD) is considered and thus considered as the bank collateral, lenders see you as a less risky borrower. Consequently, this leads to a clear advantageous interest rate.
Minimal Documentation: The process of applying for a car loan against an FD deposit is usually easier. It needs only a few documents, nearly like that of a traditional automatic car loan. This simplified process translates thereby putting the loan approvals into a shorter time.
Flexibility: The percentage (ranging from 70-90%) that you are eligible to borrow is often equal to the value of your car. This may help you acquire a significant portion of the funds required for the purchase itself. The rest can be covered through some amount which is either a down payment or other types of financing.
No Need to Liquidate FD: What is distinctive is that you don’t have to use the savings you have for the same purpose anymore. Instead, you can just take the car loan against FD keeping the investment retained. Your FD will be carrying interest which will keep on earning you. Although, you use the loan amount to buy a car.
Suitable for Individuals with Existing FDs: Such sort of loan is highly lucrative for those people who have a substantial Fixed Deposit. They want to benefit from it by not compromising on their long-term savings objectives.
Features of a Car Loan Against FD
Car loans against FD share some common features with traditional car loans, but with some key distinctions:
Loan Amount: As mentioned earlier, the loan amount is typically a percentage of your FD's value, usually ranging from 70% to 90%. The exact percentage can vary depending on the lender and your creditworthiness.
Loan Tenure: The car loan against FD tenure is usually linked to the remaining tenure of your FD. However, some lenders might offer flexible repayment options allowing you to extend the loan tenure beyond your FD's maturity.
Collateral: Your Fixed Deposit serves as collateral for the loan. This means that if you default on your loan repayments, the lender has the right to seize your FD. This is to recover the outstanding amount.
Interest Rates: As highlighted previously, interest rates on car loans against FD are typically lower than traditional car loans. This reflects the reduced risk for the lender.
Margin Money: Some lenders might require a down payment or margin money in addition to the loan amount secured against your FD. This down payment helps reduce the loan burden and further improves your chances of loan approval.
Considerations Before Opting for a Car Loan Against FD:
Impact on FD Interest: Pledging your FD as collateral for a car loan may affect the interest earned on the FD. This occurs during the loan tenure.
Loan Repayment: Ensure timely repayment of EMIs to avoid defaulting on the loan. This could result in penalties and negatively impact your credit score.
Loan Amount: Evaluate your financial requirements and opt for a loan amount that is within your repayment capacity to avoid financial strain.
Comparison of Lenders: Compare interest rates, processing fees, and other terms offered by different lenders to choose the most favourable option.
Process of Applying for a Car Loan Against FD
The application process for a car loan against FD is generally straightforward, involving these key steps:
Choose a Lender: Research and compare loan offerings from different banks and financial institutions. Look for lenders with competitive interest rates, flexible repayment options, and a transparent application process.
Gather Documents: Compile the necessary documents, including your FD certificate, proof of income, identity proof, and address proof. Additionally, include other documents as required by the lender.
Submit Loan Application: Submit your completed application form along with the required documents to your chosen lender.
Loan Approval and Disbursement: Once your application is approved, the lender will disburse the loan amount directly to your car dealership or your chosen account. The specific process might vary depending on the lender.
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A car loan against FD offers a compelling option for those using their savings for a car purchase. It has lower interest rates, a streamlined process, and flexibility, making it faster and more cost-effective than traditional car loans. However, consider its impact on FD interest and the risk of foreclosure. Explore alternative financing options before deciding.