Team-BHP - Car Loan against Fixed Deposits

Quote:

Originally Posted by luky_13 (Post 1107161)

Say you took a loan of 5L against an FD of the same amount and paid religiously for a period of time and then defaulted... would the bank take the complete 5L or the value of the loan outstanding and return back the balance to you ?

Here is how it will work.

Example :If on an Rs. 5 Lack FD you took a loan of 4 lacks.

There are no fixed EMI's that you need to pay for you loan. You can pay it when ever you like and any amount you like.

The main thing is that your loan value should not cross the maximum permitted loan value. i.e in most cases 90% of the FD value. So like in this case the FD value is 5 lacks and 90% of this will be 4.5 lacks. So your principle amount plus interest should not cross 4.5 lacks. If it does then bank will ask you to either deposit some money or if not then they will close the FD and substract the outstanding loan from it and then they will fund the remaining amount to your account.

Hope this helps you a little bit :)

Quote:

Originally Posted by Fountainheader (Post 1107078)

Sounds too good to be true actually :)

Okay, I am back. You bet this is too good to be true. Say you have a 10 lakh FD and want to buy a C segmenter @ 9 lakhs (90% loan of the FD Value).

Dena Bank is currently giving 9.75% while SBI is giving 10 (according to the gentleman above). Lets say we are covering a 1000 day period (little less than three years) : The fixed deposit will have a maturity value of about Rs. 13 lakhs.

Now, @ 1% more, the EMI comes up to 29,xxx. For a loan of 3 years, you would have effectively paid them about 10.5 lakhs back. However (and again) in the same time, your FD has matured to a value of 13 lakhs!

Of course, there is the 1 lakh difference (10 lakh FD versus 9 lakh loan) but this is still a tempting proposition. Other benefits:

- No waiting for approval
- No endorsement on the RC book
- No prepayment / foreclosure charges
- Easier to sell the car
- Rate will be the same whether you are buying a new car, used car or an import

Does anyone see a disadvantage that we've missed? I'd love to hear you out since I am seriously considering this for my next car.

@ FountainHeader : Thanks for creating this thread. We learn something new every day! Sometimes, it's the simplest things.

In normal cases, this is no better than closing the deposit and buying the car with the cash. In case of the loan against deposit, you will end up paying the difference in deposit interest and loan interest to the bank, which is 2% in most cases.

In case if you have to pay penalty for pre-closure of your term deposit, normally 1% of the served tenure, then LAD is a better option.

Quote:

Originally Posted by DCEite (Post 1107157)

I have a related question.
Supposing a person has 2-3 FDs with a Public Sector Bank. Now suppose he applies for a car loan in the same bank, but not necessarily loan against FD. Will the bank give any kind of preference and will it be easier to get the loan with minimum paperwork in that case to the customer?

The bank may give some preference to you as an existing "high value" customer, in terms of speed of loan sanction or even a small discount on interest rate, rarely. But unless there is a lien on the deposit, there is nothing bank gains from giving you a loan. I really don't see any other benefit with respect to documentation or processing since the stipulated procedure has to be followed in any case, especially in case of a public sector bank.

I think the facts need to be rechecked out here. if your bank deposit is earning 9% - its not quite possible to get a loan against it for 9% !!

they why even use it to buy a car ? - just use that money to book another FD at 10% ( there are banks giving 10% interest for various tenors even now - i checked CITIBANK and they are giving 10% for 1 year deposit )

so if ur FD was 5 laks and it earns 9%, u get 90% loan against that at 4.5 lakhs - you can then open a/c with , say , CITIBANK and get 10% on those funds -

net earning for you is 1%
THIS IS NOT POSSIBLE - im quite sure

Quote:

Originally Posted by GTO (Post 1113803)

True. But beneficial for those who already have fixed deposits?!

Exactly! This is like asking is if its better to buy car with outright cash or with the help of loan. The response is not easy since that depends a lot on the loan terms, inflation over the period, interest rate changes, depreciation rules, cash flow etc...

Quote:

Originally Posted by narayan (Post 1113856)

As mentioned by the thread poster, this is availed through an employee of the bank. They typically get more interest for deposits and less interest for loans compared to public. I have worked with a bank for quite some time and have seen many employees "utilizing" this benefit by taking personal loans in discounted rates and lending out the money to others or even depositing it in other banks with higher interest rates.

I got a loan of 5 Lacs from State bank of hyderabad at 11% PA. I am getting 10% for my FD. No prepayment charges, no EMI's and i can pay as per my wish. Interest will be calculated on the principle outstanding and it is on daily reducing basis.
No hypothecation and i got DD for 5 lacs in 1 day. If we are having FD's, going through this way is much better.

Guys, I can't quite follow the arguments.

Lets take GTO's case.

Quote:

Originally Posted by GTO (Post 1113649)

Okay, I am back. You bet this is too good to be true.

FD=10 lac
Term=3 yrs
Rate=10% p.a.

Loan Required=9 lac
Term= less than or equal to 3 years
Rate=10%+2% p.a. minimum (for most of us). This rate is constant independent of how you plan to pay the seller (once a month/immediate DD/once a year et al). Also the bank cares a damn about how you want to use this money.

Comparing apples and apples, take the 9 lacs amount in contention.

If FD, this 9 lacs would become ~ 9 lac * 10% * time period (3 yrs)
For the loan against FD, you would lose ~ 9 lacs * (10%+2% min) * time period (3 yrs)

Therefore, this minimum 2% is always the extra hit on your pocket. Now, if you break a FD, you lose less than 2% in most cases (becomes negligible if FD is close to maturity). Check the pre-closure rates of your bank.

So, makes a lot of sense to break the FD and pay cash!

Now, there's a product for SMEs called Loan Against Deposit - you can avail say, a 30 lac loan on a 10 lac deposit with lowered interest rates. Now, that starts making financial sense.

This sounds-to-good-to-be-true offer might help employees of banks more.. and I still wonder why it isn't advertised properly.

I know there are lots of ifs and buts in the entire argument but I still think this is a pretty decent deal. If you add the fact that FDs for 5 years+ are now eligible for tax deduction under section 80c. EDIT: You cant claim loans on tax saver deposits.

Here's another scenario.. you have 10L in your bank account. And you want to buy say a 9L car. What are the options you have ?

1: Car Loan
2: Pay outright cash
3: Loan against FD
4: Borrow from friends/family/relatives

Atleast for someone like me who's just started a career post MBA, I had only options 1 and 3. I dont have cash, nor did I want to borrow from my parents. Will anyone be willing to pay full downpayment to buy C-Segment cars ? I think most of the people do take loans for the same.

HDFC Bank offered 12% and SBI came close with 11.75%. I dint check with other banks. Lets assume my dad is not in the SBI. With a 9% FD, I'd still pay 11% interest, which is significantly less than 11.75% that SBI car loan offers.

Apart from that, I get the benefit of all the points that GTO mentioned. The biggest one being the ease of selling the car. Say I have a 5.2L loan against FD for a 5.4L car. 2 months down the line, I decide to sell the car for some reason or the other. THis is a steal!

My dad got the draft in 15 minutes. I dont have to put 50 odd signatures during the car registration.. Simply put.. I'm lovin it! :)