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Fixed deposits are a trusted way to build savings, offering security, steady returns, and financial peace of mind. However, if you plan to purchase a car while keeping your fixed deposit intact, some banks offer the option of taking a car loan against it.
This facility allows you to meet your funding needs without breaking your FD and losing potential interest earnings. This type of loan linked to your FD is often processed quickly and may come with lower car loan interest rates compared to regular car loans.
A car loan against a fixed deposit is a type of secured loan. You use your FD as security to borrow money from a lender. The FD remains with the bank while you repay the loan.
The loan amount is usually a percentage of your fixed deposit value. Many lenders offer up to 90% of the FD amount as a loan. You continue earning interest on your FD during the loan tenure.
Since the loan is backed by your FD, it may have a lower interest rate compared to regular car loans. The FD acts as a safety net for the bank, reducing their lending risk.
When you apply for a car loan against your fixed deposit, the bank places a lien on your FD. This means you cannot withdraw or break the FD until the loan is repaid.
The loan amount is usually credited directly to your account after the paperwork is completed. Some banks allow you to use the loan amount to buy any car, new or used, based on their policies.
You need to repay the loan through EMIs as per the agreed schedule. If you default, the bank can recover the dues from your FD. Once you repay the entire loan, the lien is removed, and you regain full access to your fixed deposit.
Before applying for a car loan against fixed deposit, it is important to know its key features. These features could help you understand how the loan works and what to expect:
Secured loan type
The loan is secured against your fixed deposit, which reduces the lender’s risk and may result in lower interest rates.
Loan amount based on FD value
Most banks offer a loan of up to 80% to 90% of your fixed deposit amount.
Continued FD interest earnings
Your FD continues to earn interest even after the loan is taken. However, you may not be able to close or withdraw it until you repay the loan.
Quick processing and minimal paperwork
Since you are already a customer and the FD is held by the bank, approval and disbursal are often faster with fewer documents required.
Lien on fixed deposit
The bank places a lien on your FD, which means you cannot use or break it until the loan is repaid fully.
Repayment through EMIs
You are required to repay the loan through monthly instalments over a fixed tenure agreed upon during the loan sanction.
Taking a car loan against your fixed deposit could offer several advantages. Here are some benefits you might find useful when considering this option:
No need to liquidate savings
You can keep your fixed deposit intact while still meeting your funding needs for purchasing a car.
Lower interest rates
Since the loan is secured, the interest rates are generally lower than those of regular unsecured car loans.
Simple eligibility requirements
Banks usually do not require income proof or credit score checks, as your FD acts as the primary security.
Continued interest on FD
Your savings continue to earn returns during the loan tenure, helping you grow your wealth while you repay the loan.
Faster approval process
As the bank already holds your fixed deposit, the loan can be processed quickly without complex checks or approvals.
Flexible loan amount
You can choose the loan amount you need, depending on your fixed deposit value and the cost of the car you wish to buy.
While a car loan against FD can be convenient, you should be aware of certain important points. Keeping these in mind could help you make a better decision:
Limited access to your FD
Once you take the loan, the bank places a lien on your fixed deposit. This means you cannot withdraw or close it until you fully repay the loan.
Risk of FD foreclosure
If you fail to repay the loan on time, the bank has the right to recover dues by liquidating your FD.
Interest rate comparison
Some banks may offer slightly higher interest rates than your FD earnings. It is important to compare and check if it is beneficial.
Loan tenure and FD maturity
Ensure that your fixed deposit tenure is longer than or equal to your loan tenure to avoid complications during repayment.
Processing fees and charges
Some banks may charge processing fees or penalties for early repayment. Always check the fee structure before applying.
Limited to FD holders
You must have a fixed deposit with the lending bank to avail of this facility. You cannot use FDs from other banks.
A car loan against your fixed deposit could be a smart way to finance your car without breaking your savings. It gives you quick access to funds while your FD continues to earn interest.
However, you should read the loan terms carefully and understand the lien on your fixed deposit. Compare the interest rates, fees, and repayment conditions before making a decision.
Choosing this option could help you meet your needs while keeping your long-term savings intact, provided you borrow carefully and repay on time.
Yes, you can. Many banks offer a car loan by accepting your fixed deposit as security. You can borrow up to a certain percentage of your FD value, usually around 80% to 90%.
You cannot access or break your fixed deposit until you repay the loan. If you default, the bank can recover dues by liquidating your FD. Some banks may also charge fees.
Yes, you can. Banks offer loans against FDs to help you meet your financial needs without withdrawing your savings. The FD acts as security until the loan is repaid.
It is rare. Some dealers may offer 0% finance deals during special promotions. However, these offers often come with higher car prices, hidden charges, or strict eligibility conditions.
Most banks allow you to break an FD early, but they usually reduce the interest rate. To avoid penalties, check if your bank offers premature withdrawal without charges or special schemes.
No, breaking a fixed deposit does not directly affect your CIBIL score. However, if you default on a loan taken against an FD, it could impact your credit score negatively.
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