You never know when a financial emergency can make your life full of stress. Such a situation can fill your surrounding with despair and money becomes the topmost priority. How do you plan to cope up with such an issue? Most people aren’t aware about the fact, but banks do offer an overdraft facility that is quite accessible to safeguard you from traumatic situations.
With the availability of an overdraft loan, you can access monetary assistance from any bank. Considering the common masses, the meaning of overdraft doesn’t come easy and needs more light. This is also because most banks provide this facility as per their preference to help the candidates financially, so that they can fulfill their short-range financial requirements.
Introduction to Overdraft
You can call ‘overdraft’ as a credit facility that is offered to a customer. In short, overdraft can be seen as a credit arrangement permitted by the banks to people for withdrawing extra cash from their managed accounts even though the value stays below zero. This type of facility is provided by the banks to help the customer manage a financial crunch which might have risen as a result of unexpected events. It can also involve major events associated to life, such as death in the family, accidental cases, fire breakdown, business failure etc.
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
Difference between Overdraft and Regular Loan
Individuals in search for immediate funds from banks would be quite interested in learning about the prime difference between overdraft (OD) and regular 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 In addition, the amount which is withdrawn varies depending on the customer’s requirement.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 which 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 3 to 25 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 building, 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.