How To Profit From Car Loan: FD-Backed Strategy Works?

Car Loan Profit Calculator

Introduction

I saw this video presented which is offering a unique strategy to profit from car loans. Initially when I saw this video, I was very sceptical of what’s being said. I have two apprehensions.

• My first apprehension is about the math behind calculation described in the video. So I though to do the calculations myself and check if profiting from a car loan is possible or not. I’ll present it to you what I found from my calculation (jump here to read it first).
• My second apprehension was related to cash flow management. I’ll elaborate this as well in my post (jump here to read it first). This point is so dominating over the my previous apprehension that, majority middle class people may never use the logic presented in the video.

So, what is my conclusion about the idea of the video? Is it a click bait? Mostly yes, but it also highlights an important financial concept. I’ll talk about it in this post (jump here to read it now).

What’s In The Video?

The guest speaker outlines a method where he secured a personal loan backed by a fixed deposit (FD). This FD was a Senior Citizens FD, which generally offers a higher interest rate than other type of fixed deposits.

This financial “hack” demonstrates how one might profit from a car loan.

It can be done by strategically leveraging different interest rates. How?

The core idea involves taking a personal loan against a fixed deposit (FD), rather than a standard car loan, to secure a significantly lower interest rate.

For example,

• Instead of paying 14-16% interest on a used car loan, one could get an FD-backed loan at 8.5%.
• The FD itself will earn a higher return.
• What is the result? There will be more money gained from the FD interest than the interest paid on the loan.

Additionally, the speaker suggests another hack.

He says, after building a good credit score and income, one can further reduce interest rates by transferring the loan to another bank. If the other bank offers lower rates, the cost of borrowing will further come down.

On the face of it, the whole process looks like a dream, but in reality it is not.

But I must give at least give this to the speaker that, through his video, we’ll get to know the benefits of a concept called “reducing balance method” used in bank loans. If you want to know how reducing balance loan calculation is done, you can read this post.

Exact Calculation of What’s Being Told in The Video

• Secondhand Honda City Cost: Rs.17 lakh rupees.
• Amount in Bank (Savings): Rs.20 to Rs.25 lakh rupees.
• Senior Citizen FD Created: Rs.20 lakh rupees in the name of the individual’s father at SBI.
• FD-Backed Personal Loan Taken: Rs.17 lakh rupees.
• Interest Rate on Personal Loan: 8.5%.
• Loan Repayment Period: 3 years.
• Total Interest Paid on 17 Lakh Loan (over 3 years): Approximately Rs.2.5 lakh rupees.
• Total Interest Earned on 20 Lakh FD: A little over Rs.4 lakh rupees.

Based on the above figures, the claimed “profit” is the difference between the FD interest earned and the loan interest paid:

Rs.1.5 lakh rupees (profit) = Rs.4 lakh (FD interest earned) – Rs.2.5 lakh (loan interest paid)

My calculations To Verify The Claim

As I was not sure if the above conclusion can ever be reached for real, I did my own cross chek.

I’m considering the following scenario (which looks more applicable in the current situation in August 2025.

Car Loan Details:

• Cost Loan (FD Backed): Rs.17 Lakhs
• Loan Duration: 3 Years
• Interest Rate on Loan: 8.7% (RBL Bank typically offers loans against FDs at an interest rate 1-2% above the FD rate to cover risk and administrative costs)
• Based on the above set of numbers, I will calculate the following:
  • EMI on the pesonal loan.
  • Total interest paid on the loan.

Sr. Citizen FIxed Deposit (FD):

• Deposit Amount: Rs.20 Lakhs (but I’ll consider on Rs.17 Lakhs for profit calculations).
• Loan Disbursal Percentage: 85% loan disbursal on the deposit amount.
• Deposit Duration: 3 Years
• Interest Rate on Deposit: 7.7% (RBL Bank – Premature withdrawal not allowed)
• Based on the above set of number, I’ll calculate the following:
  • Calculate the total interest earned on deposit.

Now, let’s do the calculation verifying the claimed “profit” in the video

Profit Calculations (Apprehension #1)

Description	Personal Loan For Car	Fixed Deposit (FD)
Amount (FD backed Car Loan)	Rs.17 Lakhs	Rs.17 Lakhs (not 20 Lakhs)
Duration	3 years	3 Years
Interest Rate	8.7%	7.7%
EMI on the Loan	Rs.54,818 (keep a note)	Not Aplicable
Total Interest (Paid / Earned)	Rs.2,73,448	Rs.4,25,937.95

Net Profit/Loss Calculation:

• Total Interest Earned on FD: Rs.4,25,937.95
• Total Interest Paid on Loan: Rs.2,73,448

To determine the net profit or loss from this strategy, we subtract the total interest paid on the loan from the total interest earned on the fixed deposit:

Net Profit/Loss = Total Interest Earned on FD – Total Interest Paid on Loan

Net Profit/Loss = Rs.4,25,937.95 – Rs.2,73,448 = Rs.1,52,489.95

Based on the specific rates and the deposit amount of Rs.17 Lakhs, the calculations indicate a net profit of Rs.1,52,489.95 over three years.

This demonstrates that even with a lower FD amount that directly matches the loan amount, the strategy of profiting from car loan is be viable.

This aligns with the video’s assertion that one can “profit off of that car loan” and “make more money than you’re spending on your interest.” So my first apprehension is no longer there.

Claimed Profit in Video	Our Calculated Profit Number
Rs.1,50,000	Rs.1,52,490

Explanation of The Above Calculation?

You might ask, for the same amount of Rs.17 Lakhs and for the same duration of 3 years, with loan offering a 1% higther interest rate (compared to FD), how can the calculation still shows profit?

Description	Personal Loan For Car	Fixed Deposit (FD)	Remark
Amount (FD backed Car Loan)	Rs.17 Lakhs	Rs.17 Lakhs	–
Duration	3 years	3 Years	–
Interest Rate	8.7%	7.7%	How can the interest paid on loan at 8.7% per annum be low than interest rate at 7.7%?

Let’s understand how this happened.

• The loan amount and FD amount are both Rs.17 Lakhs.
• The duration is 3 years, and
• The loan interest rate (8.7%) is 1% higher than the FD interest rate (7.7%)

The reason a profit is still made, despite the loan having a higher interest rate, lies in the mechanics of how interest is calculated and applied for deposits versus loans:

For the Fixed Deposit (FD):

• You are earning interest on the full principal amount of Rs.17 Lakhs for the entire duration of 3 years.
• The interest earned is compounded annually. This means that at the end of each year, the interest earned is added back to your principal, and in the subsequent year, you earn interest on this larger sum.
• This “interest on interest” effect significantly boosts your total earnings over time. The depositor continuously earn on the initial Rs.17 Lakhs and the accumulating interest.

For the Loan (EMI-based):

• While the annual interest rate on the loan (8.7%) is higher, you are paying interest on a continually reducing principal balance (read more about it in detail here).
• Each month, when you pay your EMIs, a portion of that payment goes towards paying off the principal amount of the loan, and the remaining portion goes towards interest. For example, if your EMI is say Rs.10,000:
  • EMI (Principal component): Rs.3,500 (a part of EMI is principal which reduces your loan outstanding balance).
  • EMI (Interest component): Rs.6,500 (this part if the interest earned by the bank).

As the principal amount outstanding decreases with each passing month, the base on which the interest is calculated also shrinks.

Therefore, you are not paying 8.7% interest on the full Rs.17 Lakhs for the entire three years. The total interest paid is the sum of interest paid on the diminishing principal over the loan term.

Feature	Personal Loan For Car	Fixed Deposit (FD)
Amount	Rs.17 Lakhs	Rs.17 Lakhs
Duration	3 Years	3 Years
Interest Rate	8.7%	7.7%
Total Interest	Rs.2,73,448 (Paid To Bank)	Rs.4,25,937.95 (Paid By Bank)
Remark	Reducing Balance Method of Interest Calculation. Interest load decreases as the loan balance decreases each month.	Interest Calculation done of the full amount for all 3 years.

My apprehinsions related to feasibility of the maths behind such profiting has vanished. Now, I’ve realized that the concept of “reducing balance method” is behind this profiting and not some finfluencer’s hack.

So I’m good on this now.

Cash Flow Concern

Our previous calculations have confirmed the potential for net profit from leveraging an FD-backed car loan.

But a significant practical challenge emerges concerning affordability and cash flow management.

My second apprehension will highlight the core issue which the speaker of the video has not clarified:

• The requirement of substantial upfront capital: The person undertaking this strategy, though profiting, must first possess the entire amount needed for the car purchase (e.g., Rs.17 lakhs to deposit in the FD). This immediately restricts the strategy to only those who are already quite well-off financially. This explained strategy is not for someone who genuinely needs a loan to afford the car.
• The burden of monthly EMI payments: Despite having the principal amount, the individual still incurs a significant monthly financial commitment. As calculated, for a Rs.17 lakh loan over 3 years, the EMI would be approximately Rs.54,818 each month.

This brings forth a critical question of affordability for a significant portion of middle-class India.

Even if someone has managed the lump sum for a car, can how they will afford to pay an EMI of over Rs.54,000 every single month for three consecutive years?

A person who earns abour Rs.100,000 per month will see almost 50% of his income going into the EMI. He will have to substantially reduce his disposable income. How many can afford to reduce 50% of their expense for a car?

I think, a very tiny minority will do it, despite the overall long-term profit.

The strategy, therefore, seems more suited for sver specific individuals. Who are they:

• One with not just capital, but also,
• With robust and consistent monthly cash flow to manage such high EMIs without financial stress.

Conclusion

Our discussion has thoroughly explored the suggested financial strategy: profiting from a car loan by leveraging a Fixed Deposit (FD).

Initially, the concept seems counterintuitive, as one typically expects to pay interest on a loan, not earn from it.

However, as the video suggests, it’s possible to “make more money than you’re spending on your interest”.

Then, we confirmed this mathematically the following:

• For a Rs.17 Lakh FD over 3 years at 7.7% interest, a total of Rs.4,25,937.95 in interest is earned.
• Simultaneously, for a Rs.17 Lakh loan (against this FD) at 8.7% over 3 years, the total interest paid is Rs.2,73,448.
• This way the person can actually make a profit of Rs.1,52,489.

The crucial factor enabling this net profit of ₹1,52,489.95 is a concept called reducing balance method of EMI calculation for bank loans.

However, a significant the practicality and affordability of this strategy, for the average Indian middle-class individual, is very doubtful. Why?

While mathematically profitable, it necessitates the borrower already possessing the entire car amount (e.g., Rs.17 Lakhs) to place in an FD. More importantly, it requires them to manage substantial monthly EMI payments (approximately ₹54,818 for a ₹17 Lakh loan) for the loan tenure.

This high monthly outflow presents a considerable cash flow burden, making the strategy viable only for those people who are already very rich.

Have a happy investing.