An overdraft is a credit feature offered by private and public sector banks that permits you to withdraw an amount as per your requirements. Borrowers can repay the withdrawn amount at their convenience. The interest rate is charged only on the utilized amount from the total sanctioned limit.
Eligibility Criteria for availing Overdraft
The eligibility criteria for overdraft facility is mentioned below:
- Age Criteria: Minimum 21 years and maximum 65 years
- Bank Account: Applicant should have existing bank account with the respective bank
- Income Criteria: Depends on lender
- Good CIBIL or credit score shall be an added advantage
- Business existence: Varies from bank to bank
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- Duly filled application form with Passport-sized photographs
- Identity Proof: Passport, Voter ID card, Driving License, PAN card, Aadhar card
- Address Proof: Utility Bills (Water/Electricity Bills), Passport, Driving License, Voter ID card
- Age Proof: Passport, Class X certificate
- Last 12 months’ bank statement
- Any other document required by the lender
Interest Rates – Fees & Charges
The interest rates, fees and charges vary from bank to bank and shall depend on the applicant’s profile and his/her relationship with the bank.
- Overdraft account is a facility that can be availed by maintaining any bank account
- Several private sector banks are now offering this facility for both salary and savings account holders
- The money extension is granted on the basis of customer’s account value, repayment history or credit score
- It is short-term credit provided by the bank that needs to be paid within the stipulated time limit
- Credit amount or overdraft attracts interest for the time of use which can be from a couple of days to a few weeks
- Repayment tenure is decided by the bank and it has full authority over the account and its use
- As per the RBI regulations, current accounts and cash credit accounts are eligible for a maximum of Rs. 50,000 per week
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- Flexible use of cash in small portions
- Fulfils urgent cash crunch requirements
- Helps in managing the cash flow of business
- Interest is paid only on the utilized amount
- Less paperwork
- No collateral is required by banks/NBFCs
- Short-term borrowing – revises every year
How to Access Overdraft Facility
Customer can avail Overdraft Loan through multiple channels like internet banking, mobile app or by visiting your bank branch. Overdraft Loan facility application varies from one bank to another. Depending on your bank, you can follow any of the following procedures:
- Login through Internet Banking, mobile app and click on the offer displayed in the ‘offers tab’. Click on ‘Avail Now’ to get your overdraft facility acitivated.
- Visit your bank branch and fill out the form to avail overdraft facility
Also Know: What is the overdraft facility at SBI Bank?
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Difference between Overdraft vs Term Loan
Individuals in search of immediate funds from banks would be quite interested in learning about the prime difference between Overdraft vs term loan. This information is important to judge which one in better, when there is any sort of monetary hassle in your life. The major dissimilarities are mentioned as follows:
- An overdraft option is a form of credit which is offered to an individual or organization based on a current account. In addition, the amount which is withdrawn varies depending on the customer’s requirement. However, a regular loan talks about a fixed amount that is borrowed from a specific bank highlighting a stated repayment duration
- Considering an overdraft, the rate of interest is charged specifically on the borrowed overdraft amount and not on the stated limit; however, for a regular loan, the rate of interest is applied on the whole amount borrowed, regardless if it is completely utilized or not
- Generally, an overdraft is accessed for a lesser duration and the candidate isn’t allowed to borrow large amounts due to limits on credit. On the other hand, a loan is accessible for a longer period, ranging from 1 to 10 years, with the availability to take large sums
- An OD is ideal to fulfill working capital needs such as daily fund requirements. However, loans prove beneficial for capital investments such as new buildings, new machinery, etc.
- Under OD facility, payment option would be made possible in a lump sum which can be shut anytime. However, the customer’s credit limit can differ subject to his/her credit score. You can call it more flexible when considering the payment scheme. With regular loans, EMIs are involved that need to be paid on a schedule. If the EMI payments are not made timely, it can harm the customer’s credit ratings
Also Read: What is an overdraft limit?
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Q. I want to know some of the leading financial institutions offering Overdraft facility in India?
Ans. Leading financial institutions offering Overdraft facility include the following:
- SBI Overdraft against Time Deposit
- Bajaj Finance Personal Overdraft Facility
- Tata Capital Overdraft Loan
- HDFC Bank Salary Plus
Q. What are the types of Personal Loan Overdraft Facility?
Ans. The types of overdraft facilities are below mentioned:
- Overdraft Against Salary
- Overdraft Against Fixed deposit
- Overdraft Against Time Deposits
Q. What is the difference between a loan and an overdraft?
Ans. The main difference between a loan and an overdraft is that in loan the interest rate is paid in full on the total loan amount. Whereas, in case of overdraft the loan amount is paid only on the utilized amount from the total sanctioned limit.