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You need to pay interest only on the amount withdrawn and utilised.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As already mentioned, in an overdraft facility, interest rate is charged only on the amount you have withdrawn and not the total sanctioned limit.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.
10.75% - 21.45%
10.99% - 18.49%
Kotak Mahindra Bank
10.99% - 20.99%
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overdraft loan amount to you, the overdraft loan interest rate will be charged only on the amount that you have withdrawn from your account.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 You have withdrawn an overdraft loan amount of ₹1,00,000, so the interest charged per day would be based on the formula Withdrawn amount x (12%) x (1/365).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:
You have to be at least 21 years.
You must have an account with the bank.
This varies from one lender to another. However, note that lenders prefer you to be employed in a reputed organisation.
Although a good CIBIL score is not a crucial factor for availing an overdraft facility, it is considered an added advantage.
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):
Here are the types of Overdraft Facility:
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.
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.
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.
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.
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.
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A personal loan overdraft facility is a credit option provided by banks and other financial institutions that allows you to withdraw additional funds from your loan account as per requirements.
A bank account's overdraft limit is the maximum amount that may be withdrawn without exceeding the credit balance. This limit varies from one lender to another.
Some of the leading financial institutions offering overdraft facilities are:
You can avail the following overdraft facilities:
Overdraft against an individual’s salary
Overdraft against your fixed deposit
In the case of an overdraft, you have to pay interest according to the amount withdrawn. However, in the case of a loan, you have to pay the interest for the total approved loan amount.
All you have to do is credit funds to your account as and when it is possible. This way, you can repay the credit facility as the outstanding amount reduces.