Overdraft Loan

An overdraft loan facility is a type of facility that lets you withdraw funds from your line of credit as per your convenience. 

 You need to pay interest only on the amount withdrawn and utilised. Simply put, a personal overdraft loan allows multiple withdrawals and part-prepayments without charging additional fees. You can repay the amount as per your convenience. 

As already mentioned, in an overdraft facility, interest rate is charged only on the amount you have withdrawn and not the total sanctioned limit. Depending on the approved limit of the OD loan account, you can withdraw money as per your requirements. 

Plus, you can add funds to your overdraft loan account at no extra cost. As there are multiple deposits and withdrawals, the overdraft loan interest is calculated using the average daily balance method. 

Using this technique, the balance remaining at the end of a day or a week is used to determine the interest rate for that account. 

Disclaimer: The interest rates are subject to change at the lender’s discretion. So, checking the prevailing interest rates on the lender’s website is advisable before availing an overdraft facility.Please note that the above-mentioned banks/NBFCs have not partnered with Bajaj Markets.

While the bank or NBFC will sanction a specific overdraft loan amount to you, the overdraft loan interest rate will be charged only on the amount that you have withdrawn from your account. The overdraft loan interest is calculated daily which is why it is important to repay your overdraft as soon as possible.

The interest on an overdraft is easy to calculate as it depends on the overdraft loan interest rate fixed by the bank or negotiated by you with your bank. The interest is then charged by the bank on a day-to-day basis, which is also called the daily product method.

So here is an example. You took an overdraft loan of ₹5,00,00 at an interest rate of 12 per cent. You have withdrawn an overdraft loan amount of ₹1,00,000, so the interest charged per day would be based on the formula Withdrawn amount x (12%) x (1/365).

That is, 100000 x (12/100) x (1/365) = 32.87

So, you would be charged ₹32.87 per day as interest on the overdraft loan amount of ₹1,00,000.

Before availing a loan, it is essential to understand its features to help you make the right choice. Here are a few key differences between a term loan and an overdraft facility. Understand them and choose the right one that best fits your financial requirements:

• To avail an overdraft loan, you must have an existing account with the lender.  On the contrary, there are no such requirements for a term loan. Plus, you can get only a fixed amount that has to be repaid within a specific tenure.

• While the lender sets a predetermined limit on an OD loan, you can get huge funds in a term loan.

• The interest rate is charged only on the withdrawn amount in an overdraft facility. However, you have to pay the interest on the entire sanctioned loan limit in a term loan.

• While you can access funds for a shorter timeline in an overdraft facility, the tenure of a term loan varies between 1 and 15 years. The maximum duration of an overdraft facility is up to 2 years.

• Availing of an overdraft facility helps manage daily expenses, while a term loan is ideal for significant investments such as purchasing machinery and related uses.

• You can repay an overdraft loan at your discretion. However, a term loan can be repaid only as per the schedule.

To avail the benefits of the overdraft facility provided by banks and other financial institutions, you have to meet the following eligibility criteria:

• Age criteria

You have to be at least 21 years.

• Bank account requirements

You must have an account with the bank.

• Income criteria

This varies from one lender to another. However, note that lenders prefer you to be employed in a reputed organisation.

• Good CIBIL or credit score

Although a good CIBIL score is not a crucial factor for availing an overdraft facility, it is considered an added advantage.

• Business vintage

This factor also varies from one bank to another. However, banks prefer a self-employed applicant who has been running a profitable business for many years.

As mentioned before, applying for an overdraft facility through Bajaj Markets is a simple, easy and hassle-free process. Submit the following documents (any one from ID and address proof): 

• Proof of identity (Passport, PAN card, Aadhaar card, Voter ID card and Driving Licence)

• Proof of residence (Electricity Bill, Gas Bill, Passport, or Leave and Licence Agreement)

• Bank account statement for the last 3 months.

You can easily apply for an overdraft facility by following these steps:

• Step 1: Visit the website of the lender.

• Step 2: Fill in your personal, financial and employment details

• Step 3: Select the loan amount from the range approved for you and the loan tenure 

• Step 4: Receive the amount within 24 hours after the loan approval as per the terms specified by the lender.