Overdraft Loan Facility: Check Rates, Eligibility, Features and Apply

As you can easily avail an overdraft facility loan without many restrictions, this line of credit facility is one of the most popular options for borrowing funds. Before you apply for an OD loan, visit the lender’s website and understand the loan features. 

At Bajaj Markets, you can apply for a flexi loan.

Annual Overdraft Interest Rates for Personal Loans

As already mentioned, in an overdraft facility, interest rate is charged only on the amount you have withdrawn and not the total sanctioned limit.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. 

Overdraft Loan Interest Rates Levied by a Few Popular Banks and NBFCs

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.

How to Calculate Overdraft Loan Interest Rate

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overdraft loan amount to you, the overdraft loan interest rate will be charged only on the amount that you have withdrawn from your account.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 You have withdrawn an overdraft loan amount of ₹1,00,000, so the interest charged per day would be based on the formula Withdrawn amount x (12%) x (1/365).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.

Features and Benefits of Applying for Overdraft Loan

• Interest-only EMI: You have to pay only the interest for the amount withdrawn. This way, an overdraft loan helps reduce your financial burden, as repayment is easy.

• Flexi-repayment tenure: After availing the overdraft facility, you can pay dues at your convenience within the repayment tenure of the credit facility.

• Withdraw as often as you want: You can withdraw the required fund any number of times as long as it stays within the overdraft facility limit set by the lender.

• Zero additional charges: The rate of interest calculated on loan is applicable on the amount withdrawn. However, making part-prepayments does not attract any charges on OD.

• Swift, online and paperless approval: You can easily avail the facility online with minimal paperwork. Submit basic KYC documents to avail this credit facility.

Difference Between Overdraft Loan vs. Term Loan

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.

What is Overdraft Loan Eligibility Criteria?

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.

Documents Required for Personal Loan Overdraft

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.

Types of Overdraft Facility

Here are the types of Overdraft Facility:

1. Overdraft Loan for Salaried Account:

To use this credit facility, you must have a salary account with the bank. A short-term lending facility is another name for this type of overdraft facility. 

Depending on the bank, the overdraft limit amount may vary between two and three times your annual pay.

2. Overdraft against a Collateral:

You can avail a line of credit by pledging any collateral. Here, an asset like property is used as security for overdraft loans, thus the money is not disbursed right away. 

The property is assessed, valued, and surveyed before it is approved as collateral. Post approval, you get the credit facility sanctioned.

3. Overdraft against Stocks or Equity:

Although stocks or equity may not be a favoured alternative for collateral, you can use it to get an overdraft loan. 

However, as equity depends on market conditions, its value keeps fluctuating. So, the proportion sanctioned for overdrafts using equity as security is less.

4. Overdraft against Insurance Policies/FDs:

Getting approval on an overdraft loan is easy using fixed deposits (FDs) and life insurance policies as security. This is because you have an FD account with the lender and maintain a good relationship.

Similarly, in the case of availing an overdraft facility against an insurance policy, the sanctioned amount depends on the surrender value of your policy.

How to Apply for an Overdraft Loan

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.

Similar to OD loans, you can apply for Bajaj Finance Flexi Loans at Bajaj Markets.

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