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-   -   The Cheap Loan or the Smart Loan - SBI Advantage Car Loan (https://www.team-bhp.com/forum/indian-car-loans-insurance/106710-cheap-loan-smart-loan-sbi-advantage-car-loan-3.html)

No issues!

If I have 10 lakhs right now, I will spend maybe 4 lakhs upfront on a car ( so that the roof above my head is not just that of my car!). With a projection that I will easily be able to afford to spend 10 lakhs in 2 years, I can take this option, and put all the 10 lakhs that I have into this account.

As this account is withdrawable, I can use money from the topup for my day to day expenses as well, at the same time reducing my interest paid for the car (rather, i am getting the car interest free, but am taking smaller loans for much smaller amounts of time for much smaller purchases)

That's where you use this scheme - I get my 10 lakh car and my security!

Need help? PM me your phone number - I can arrange for the Chevy TD (and tag along probably ;))

Given the high interest rate scenario and the dismal stock markets, this does look like a very enticing offer. I save 12+% of interest on my car loan and in the current scenario it is very difficult to get this return in other investment avenues. What's more - this is a gauranteed return if you have the money.

I must be very silly because a friend of mine explained the top-up concept to me (with reference to home loans) and I asked him, but why take a loan if you don't need a loan?

I prefer buying a car for cash. What you are suggesting is that instead of plonking all the cash into a car and acquire an asset, I undertake some expenses and acquire a liability instead. And having done so, promptly plonk the same amount of cash that I have saved up into the OD account to reduce my interest burden. Is my understanding correct?

The positive you mentioned is if I need 1.5 lac tomorrow for a 56" LED TV I can just use it from the OD amount and pay interest on that alone. Fair enough. But suppose I HAVE bought the car for cash and I DO need 1.5 lacs, what stops me from going and getting that from a bank as a personal loan?

Seems to me to be going to a whole lotta trouble getting a loan when you don't really need one. Every loan I take is a liability and affects my potential creditworthiness. I appreciate that some people may find this an attractive scheme and wish them the best, but it's not for me.

Nice illustration Keyur.

Not only that, ppl are taking agriculutre loans at lower rates and putting money in Bank FD or investing in real estate.

When I have a certain amount of cash in hand, I cannot spend the entire amount on a car - there are other responsibilities and plans to cater for. So, in normal situations, if I have 10 L in hand, I will look at a cash purchase of maybe only 4-5L. But with this kind of a loan, I can extend my reach upto 9-10L or more!

You also do forget that all cash purchases more than 5L put you on the Income Tax radar!

The fact that one would have to take a loan of 1.5 lacs shows his lack of liquidity! Also, the interest rates for personal loans are much higher!
It is always better to have money at hand - emergencies do not call before coming.

Your creditworthiness is a function of your repayment records, your total assets and your current liabilities - if you have a good repayment record with CIBIL, your creditworthiness actually grows!


Totally agree - to each his own, especially when it comes to money. There was a time when I tried to stay away from loans till the time I realized that I could use the loan to my advantage! Now, I feel that it is good to have a loan if you understand the mechanics and use them to your advantage!

I understand the concept of the loan scheme and what advantages it offers when one might be in need of liquidity. However it was not clear to me whether the interest lost of the amount deposited in the OD account is factored in.

So say, that a loan of 7lacs was taken, and on the day of disbursement i deposited the full 7lacs into the OD load account. Now based on what i have understood so far, i wont accrue any interest on this amount, whereas had i put the same in say an FD, i would have gained 9% PA if not more.

I am not saying that there is no benefit in taking an OD loan, it definitely reduces the interest payout but not by a margin as huge as suggested in this thread.

Am i missing something?

My understanding is like this

One takes a loan for say 2 lakhs. EMI is 4000/-(assumption)

Take SBI maxgain account. EMI gets deducted for this account.

Whatever surplus one can manage every month can be kept in this account.

For ex : if one can keep 10000/- in this account in the first month of loan SBI calculates interest for 194000/- instead of 2,00,000 which is the loan amount. Accordingly more amount goes towards the principle.

In case home loan account SBI charges same interest rate as that of ordinary loan.

In case of SCB interest rate for this kind of loan is more

If one can keep 2,00,000 in this account then SBI deducts 4000 as EMI and entire amount goes towards principle. no interest for that month

Cost of this scheme is loss of 3.5% Savings bank interest in case small amounts (because SBI maxgain account is cuurent account does not earn any interest). If it is full amount ex 2,00,000/- then one has to take into account the loss of FD interest. .

Advantage is one can have liquidity for any emergencies

Please correct me if iam wrong

I totally agree this scheme is most suitable for the folks who are somewhat confident of repaying the loan earlier but are not certain if they can else they would opt for shorter loan period. On top of this they also see additional income coming their way that can be allocated for re-payment of principle. What would be interesting to note is that you are locked for the 5 years or the tenure that you opt for and willing to forgo opportunity loss like: investing in shares or fixed deposit or let say you purchased gold bars today [close to money liquidity] it had given more than 20% returns in last 5years and is easy to sell and is closest substitute for cash.

So depending on the need, your appetite for risk and other financial instruments you have in the market make a wise decision.

Thanks a lot keyur for this wonderful article. Really appreciate your effforts. :thumbs up

@Keyur
The limit in the OD account can be used only for buying a car, or can it be used to buy any other household items or even may be an international holiday? For example, if I have 6L limit in my OD, can I take 4L for the car and 2L for a holiday?

In such a case, if I never allow my OD account to come out of the negative balance and keep taking money out of it from time to time, when will the car become completely mine ie., when will the car come out of hypothecation?

What portion of my repayment will go to the car loan and what portion will go to the holiday borrowing. Can I direct certain repayments to specific purchases done through the OD account?

Normally if you are earning an interest rate of 9% on a savings FD, you would be paying about 12-13% as interest on a loan. So, if you put your money in a FD account and pay the interest on the same amount for a loan, you are definitely paying more!. So saving the interest is same as gaining it!

Also, in a car loan, the interest component gets reduced at a slower rate, hence the tenure will get extended, so you lose more than you would save.

Also, once the topup is done, DO NOT put any money above it in the account - revert it back immediately - and gain your savings interest!

Lets say day 1, not month 1.
If you put 10000 rs, interest is calculated on 190000 (NOT 194000). So out of your EMI of 4000, less will go towards interest, and more towards principal.

If one tops up the entire amount, the principal is already paid up, hence no money goes towards interest or principal. By putting in the extra 4000, your account balance becomes 204000. (So, once your account is topped up, revert the extra money back!)

You lose the savings interest, but you save the loan interest (even if the savings rate is for FD and about 9%, not 3.5%, even then your loan interest rate is much higer at about 12-14% - so every rupee saved is a rupee earned!)


When you take the loan, the disbursement will happen to the vendor directly - you will not get a penny out of it! So, with a 6L loan, the entire money will go to the vendor.
But after taking the loan, AFTER you top it up (with say 4L Rs), you can withdraw the ENTIRE amount and use it for any purpose - no one checks what you do with it - and it is nobody's concern

In 2 cases :

1. When you close the loan - (at this time, the entire amount has to be paid back to the bank and the loan foreclosed)
2. When the tenure ends - by this time, the bank expects the entire amount to have been paid back - if you have still kept it at negative, you have misused the loan, paid a very heavy interest and will probably face legal action for non-payment of the loan.

Treat the OD account like a normal current account with a certain negative limit (equal to the loan amount disbursed). The EMI (which by def is EQUAL and MONTHLY) will keep getting debited from your other account (savings, salary etc). Out of this, some money will go towards interest, and the other would sit in your account!
Any top ups that you make will also get added to the balance.

You are free to withdraw any amount till the balance reaches your negative limit. But, there has to be enough money in the account to ensure that the interest deductions are successful.

So, if your account has a balance of 200000 Rs above negative limit, you can withdraw the entire amount - just ensure that the next EMI will be enough to cover the interest!

Hey thanks so much for this very interesting thread!

I have a few questions and need some help :D

What if I want to buy a car worth Rs. 30 lacs and I only have Rs 15 lacs cash? I can deposit that amount into the OD account from day one. But does it work or make sense over a normal loan where I pay the same amount as down payment?

Also, does this scheme work for used cars (wishful thinking lol).

For used cars the rate of interest is higher ( 14% or so at present). check out the SBI site.

it doesnt make sense to make a down payment for a normal loan. You can do one thing.

The current interest rate is 11.25% for SBI loan.

You take a loan for 26 lakhs

You can pay the excess cash say 11 lakh you have to the OD account ( the loan account ) and the loan amount would reduce i.e 26-11= 15 lakhs. The interest would be calculated on 15 lakhs.

The advantage is you have 15 lakhs to withdraw and is at your disposal at any point during your loan tenor and repay as and when you want. You have to ensure that the EMI account has enough balance as they will keep debiting every month.

When the interest is high you can concentrate on reducing the OD balance and take out money when the interest rates are less. In a normal loan you cannot withdraw money i.e is the main difference.

I have obtained the loan though i have the money to buy it. I am going for the loan because it would work out better if i need cash tomorrow and this is better than taking a personal loan or any other loan if the need arises. I have better control over repayments and withdrawals.

I was offered overdraft at Canera bank for car loan, but went in for a regular one with flexible EMIs.

Man this makes so much sense! Thanks for your help!

It is almost perfect for people who want to buy a car above their comfortable range but don't want to commit all the money at once even if they have it in hand. With the OD balance I will have the peace of mind and some security for times of need. At the same time I also pay less interest than a normal loan and get the benefits of tax deduction as well :D

PS: Any idea on what the procedure is to get this loan? Is this supposed to be easier to get than a normal loan or tougher?

I just hope this scheme will work for used car loans as well hehe.