In India: Use FD overdraft to pay for big purchase deals
To make payment of big purchase deals go for overdraft facility rather than taking personal loan or swiping a credit card. In case of personal loan or credit card you have to pay high interest. Whereas in overdraft facility you can place a fixed deposit with a bank and avail this facility.
When you place your fixed deposit with bank you earn return on investment and can use the same money to leverage funds at a low interest rate which can be used for the payment of purchases.
Moreover in overdraft facility you can borrow funds at 1 per cent to 2 per cent above the fixed deposit rates. Currently, the deposit rates of most of the banks range from 6 per cent to 7.50 per cent for a one to three years time period. However, SBI is offering 6 per cent, ICICI Bank 6.25 per cent and HDFC Bank is offering 6.50 per cent interest on fixed deposits for a one-year period.
If the payment is done through credit card, it is split into equated monthly installments for over a period of one year, which means you might have to pay an interest of 36 per cent to 45 per cent per annum. Whereas personal loan is an unsecured loan, the interest rate can range from 16 to 18 per cent.
According to an official of Oriental Bank of Commerce, “It is always better to take an overdraft facility against a fixed deposit than pay through a credit card for long-term repayments’ because it will carry a minimum interest rate, even lower than personal loans”.
An official of United Bank of India said, “During the time when interest rates were very high, many customers who had placed their long-term fixed deposits managed at a very low rate to take the advantage by financing their purchase of cars.”
According to Financial planner Kartik Javeri, “During an emergency, it (overdraft) is the best source for financing, but one should also have the capability to pay money quickly.”
