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How to Use Fixed Deposits to Get a Car Loan?


Fixed Deposits (FDs) have been one of the most popular investment choices for people for decades. Although many modern investment options such as mutual funds offer a scope of better returns, the popularity of FDs remains high. Apart from providing guaranteed returns on their investments, FDs also offer high liquidity to the investors.

Additional Read7 things new mutual fund investors need to know

But do you know you can use your FD to get a car loan at reduced interest rates too? Yes, you heard that right! Many banks and Non-Banking Financial Corporations (NBFCs) in India provide car loans against fixed deposits. This method of availing car finance is unconventional and is generally considered an overdraft.

How to apply for a car loan against your FD?

Applying for auto finance against an FD is easy and convenient. It involves less paperwork than a regular car loan application and takes little time to get approval. Moreover, you can continue to earn interest on your investment as there is no need to break your FD to take a car loan against it.

Below are the steps to apply for a car loan against an FD:

Step 1 – Approach your preferred bank or NBFC to get a car loan against your fixed deposit. Depending on your choice, it can be the same bank where you have opened your FD account or a different one.

Step 2 – Apply for an overdraft against your FD by filling up a loan application form.

Step 3 – Submit your FD receipts to the lender.

Step 4 – The lender will accept your FD as a mortgage and transfer the loan amount directly to your bank account.

Basic features of a car loan against an FD

Below are the essential points you need to remember when you apply for a car loan against your FD:

  • You can avail of vehicle finance of up to 90% of the total value of your fixed deposit. The final amount that will be sanctioned depends upon the lending institution.

  • In most cases, the interest rate charged by the lender on this type of loan is 2 to 3% more than the interest you are earning on your FD. For example, if you make 8% annual interest on your FD, the lender can levy an interest rate of 10 or 11% on your car loan.

  • Usually, lending institutions do not charge any processing fees for this type of loan. However, other charges such as stamp duty charges and pre-closure charges may apply.

  • You can choose the repayment tenure of your loan, but it should not be more than the tenure of your FD. For example, if the term of your FD is five years, you can choose your loan tenure anywhere between one to five years.

Additional ReadAll you need to know about Corporate Fixed Deposits

Benefits of availing car loan against FD

There are numerous benefits of availing car finance against an FD, such as:

  • The most significant benefit is that the rate of interest charged by the lender on this type of loan is much lower than a regular car loan.

  • You have the flexibility of choosing the repayment tenure for your car loan. However, keep in mind that it should not exceed the tenure of your fixed deposit.

  • When you use your FD to apply for a car loan, it gets approval easily and quickly. This type of loan requires less documentation and hence is sanctioned faster.

  • You will be able to avail of auto finance to purchase a new car without breaking your FD. You will continue to earn interest on your FD even after taking a loan against it.


Now that you know the benefits of taking a car loan against a fixed deposit, how about opening an FD account? You can simply open your FD account online and earn interest up to 6.75% per annum on your investment.


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