The Hindu Business Line : Overdraft on car

WORRIED that your money is locked up in your new car? You do not have to. A host of options are available to tide over your liquidity crunch. HDFC Bank's overdraft facility on car is one such option. The scheme directly competes with ICICI Bank's car overdraft scheme and indirectly with credit cards.

How it works

The bank opens a zero balance current account in your name. The account comes with the usual paraphernalia, such as a cheque book.

The documents required are very similar to that for any loan account — proofs for address, identification and signature. The bank also requires the hypothecation of your car.

Once the bank parks the amount sanctioned in your account, you can draw money as you please. Interest is charged only on the amount drawn and not on the overdraft limit. The interest is charged on a daily diminishing basis and is now 17.5 per cent for amounts up to Rs 2 lakh and 17 per cent for amounts above Rs 2 lakh. ICICI Bank charges 16-19 per cent on the amount withdrawn.

While the loan eligibility depends on the valuation of the car, the minimum amount you can get under the HDFC Bank scheme is Rs 50,000 and the maximum Rs 7 lakh (ICICI Bank offers up to Rs 10 lakh). An expert from the bank will value your car, based on its quality, brand, model and vintage, for a fee of Rs 275. Based on this valuation, the bank offers you an overdraft limit of 70-80 per cent of the value of the car.

If you have bought the car through a hire-purchase scheme, the bank forecloses the loan. The remaining amount (the overdraft limit minus the car loan) is parked in your current account.

Suitability

The scheme is suitable for self-employed professionals/businessmen who require a constant rotation of cash. However, note that:

The overdraft facility is not available for imported cars and models that have been phased out

The interest rate is as high as personal loan rates offered by private banks, though it is much lower than what credit-cards charge for balances.

For salaried individuals who cannot rotate the cash and for those who require lower amounts, a personal loan from a PSU bank will be a better option as it comes at a much lower interest rate.

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