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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 You need to pay interest only on the amount withdrawn and utilised.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. 

Overdraft Loan Facility Interest Rates

As already mentioned, in an overdraft facility, interest rate is charged only on the amount you have withdrawn and not the total sanctioned limit.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

Banks/NBFCs

Interest Rates (p.a.)

TATA Capital

13.50% onwards

HDFC Bank

10.75% - 21.45%

ICICI Bank

10.99% - 18.49%

SBI

9.65% onwards

Kotak Mahindra Bank

10.99% - 20.99%

IndusInd Bank

11.25%

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overdraft loan amount to you, the overdraft loan interest rate will be charged only on the amount that you have withdrawn from your account.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 You have withdrawn an overdraft loan amount of ₹1,00,000, so the interest charged per day would be based on the formula Withdrawn amount x (12%) x (1/365).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

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 Overdraft Loan

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.

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How to Apply for Overdraft Facility

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.

DISCLAIMER

The information and suggestions provided by BFDL hereinabove is related to the Non-Partnered Banks/ NBFCs and is just for the purpose of information and under no circumstances the information provided hereinabove is intended to be source of advice or recommending any financial advice or endorsement of any sort.

The information including interest rates or fees, loan amount and other charges with regard to any product, provided on this website is gathered through publicly available sources over the internet and is considered as accurate and reliable to the best of our knowledge. BFDL disclaims any responsibility or liability regarding inaccuracies, omissions, mistakes etc. as well as offers by the Non-Partnered Banks or NBFCs. The use of information set out is entirely at the User’s own risk and User should exercise due care prior taking of any decision, on the basis of information mentioned hereinabove. You are advised to visit/ contact the respective Banks/ NBFCs to verify the information before making any application or opening an account. Further, BFDL does not undertake any responsibility or liability to update this information. YOU ARE SOLELY RESPONSIBLE FOR ANY LIABILITY OR DAMAGE YOU INCUR THROUGH ACCESS TO OR USE OF THE SITE OR SUCH INFORMATION OR MATERIALS EXCEPT WHERE THE LAWS AND REGULATIONS OF A PARTICULAR JURISDICTION CONCERNING WARRANTIES CANNOT BE WAIVED. Additionally, display of any trademarks, tradenames, logo and other subject matters of intellectual property owners. Display of such Intellectual Property along with the related product information does not imply BFDL’s partnership with the owner of the Intellectual Property of such products.

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FAQs on Overdraft Facility

What is a personal loan overdraft facility?

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.

What is the personal loan overdraft facility limit?

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.

Which leading financial institutions are offering overdraft facilities in India currently?

Some of the leading financial institutions offering overdraft facilities are:

  • SBI

  • Bajaj Finance

  • Tata Capital

  • HDFC Bank

What kinds of personal loan overdraft facilities currently exist in the market?

You can avail the following overdraft facilities:

  • Overdraft against an individual’s salary

  • Overdraft against your fixed deposit

What is the difference between an overdraft and a loan?

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.

How do I repay my personal loan overdraft?

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.

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