The interest rate offered by Bank on OD is calculated only on the withdrawn amount from the total sanctioned limit. It shall vary from lender to lender and depends on the required Overdraft amount, the account balance in your current or savings account, and your existing relationship with the respective Bank.
Features
- Overdraft is a credit facility that can be availed by maintaining any bank account (savings or current)
- Interest rate is charged only on the utilized amount from the total sanctioned limit
- Several Private Sector and Public Sector Banks offer this facility for both salary and savings account holders
- Money extension is granted on the basis of the customer’s account value, repayment history, or credit score
- Short-term credit is provided by the Bank and needs to be repaid within the stipulated time limit, usually 12 months or even lesser
- Credit amount or Overdraft attracts interest for the time of use which can be from a couple of days to a few weeks
- The repayment tenure is decided by the bank and it has complete authority over the account and its usage
- As per the RBI regulations, current accounts and cash credit accounts are eligible for a maximum of Rs. 50,000 Overdraft per week
OD can be used to meet working capital requirements and to meet business cash flow. Businesses often have to wait for the payments from their clients and this results in delayed payments from their side as well. With the support of Overdraft in their current accounts, businesses can sign cheques for their clients beyond the available funds in their accounts. This prevents cheque dishonor and maintains the reputation of the business, as well.
However, this facility is only offered to the existing bank account holders who maintain a good reputation in terms of repayment habits and good credit score. Moreover, the Overdraft facility requires a certain annual fee, and customers have the right to discontinue the service whenever they want.
