The so called "effective interest" doesn't exist, and to calculate based on the remaining principle amount to refresh the interest rate doesn't make sense as well.... so let's forget about all the rates and percentage, and see the real life calculation below:

Loan $50,000. On 2.8% loan interest will end up 1,400 x 5 = $7000 interest paid for the entire tenure.

Now, put those $50,000 into FD, and remember compounded interest.... at 3.0% pa
the total amount of interest earned at the end of 5 years
= $7963.70

It doesn't take 5+% of FD interest to reach the same amount of interest paid for car loan. In fact much lesser due to compounded calculation.

I don't think you are right, but I could be wrong too?
edit: i think we are both looking at different directions. You are assuming that the amount in FD is to be gradually withdraw to service the monthly installment. right? My assumption is those are spare cash, and being spare is the only reason why people would scratch their head and consider all these in the first place.

. GLS....

SD only capable of assembly the badge mah... Wat to do....