I am sure all of you are aware of Fixed Deposits where you pledge your money to a bank for a fixed amount of time and earn a rate of interest on the same. Most Middle class Indian families have some amount locked in fixed deposits. However, very few people are aware that these deposits can help them get liquidity on a later date at an affordable rate of Interest.
I have 2 lakhs locked in a fixed deposit which fetches me 9% p.a. Now I need some cash to buy a Car for example a TATA Nano which costs in the range of Rs.125,000 to Rs.130,000. Most people would prefer to take a vehicle loan which will cost anywhere between 14% p.a. to 16% p.a.
A better option would be to go to the bank where you hold the fixed deposit and ask them for an Overdraft against the Fixed Deposits of 2 lakhs. Most Banks (especially the Indian Banks) sanction an OD Limit of upto 90% of your Fixed Deposit Amount, at an Interest Rate which is 1% to 2% more than your Fixed Deposit Interest Rate. So I would be eligible for a Loan of Rs.180,000 at 10% p.a. The best part about this product is that the Interest is charged on a daily average balance method and I pay interest only for the days on which I borrow the money.
This has the following benefits.
1. In a Personal Loan, I predecide the tenor to be 12 months or 24 months and as a result, the interest gets calculated upfront and gets baked into the calculation. The pre-closure charges are heavy and there may be an hefty pre-closure fee as well
2. In the Overdraft, I write out a cheque of Rs.125,000 for my Nano car. After a month I get my salary of Rs.50,000 (or any cashflow) which I can temporarily park in this account. When the Interest is calculated for the month, I save interest to the extent of this amount.
3. In the overdraft you effectively get charged an interest rate of 1% or 2% only, as you continue earning money on your Fixed Deposits and do not need to break the same.
Due to some technical reasons, I am unable to post an Excel Model to show how much Interest you save, however feel free to write to me at the address mentioned below and I will mail the same to you. For any queries on Overdraft accounts or any questions you have in the personal finance domain, do feel free to write into Ask.Pranav@Gmail.Com. I will revert to your query within 48 hours.
I have 2 lakhs locked in a fixed deposit which fetches me 9% p.a. Now I need some cash to buy a Car for example a TATA Nano which costs in the range of Rs.125,000 to Rs.130,000. Most people would prefer to take a vehicle loan which will cost anywhere between 14% p.a. to 16% p.a.
A better option would be to go to the bank where you hold the fixed deposit and ask them for an Overdraft against the Fixed Deposits of 2 lakhs. Most Banks (especially the Indian Banks) sanction an OD Limit of upto 90% of your Fixed Deposit Amount, at an Interest Rate which is 1% to 2% more than your Fixed Deposit Interest Rate. So I would be eligible for a Loan of Rs.180,000 at 10% p.a. The best part about this product is that the Interest is charged on a daily average balance method and I pay interest only for the days on which I borrow the money.
This has the following benefits.
1. In a Personal Loan, I predecide the tenor to be 12 months or 24 months and as a result, the interest gets calculated upfront and gets baked into the calculation. The pre-closure charges are heavy and there may be an hefty pre-closure fee as well
2. In the Overdraft, I write out a cheque of Rs.125,000 for my Nano car. After a month I get my salary of Rs.50,000 (or any cashflow) which I can temporarily park in this account. When the Interest is calculated for the month, I save interest to the extent of this amount.
3. In the overdraft you effectively get charged an interest rate of 1% or 2% only, as you continue earning money on your Fixed Deposits and do not need to break the same.
Due to some technical reasons, I am unable to post an Excel Model to show how much Interest you save, however feel free to write to me at the address mentioned below and I will mail the same to you. For any queries on Overdraft accounts or any questions you have in the personal finance domain, do feel free to write into Ask.Pranav@Gmail.Com. I will revert to your query within 48 hours.
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