Personal loan overdraft facility is a credit line facility wherein the personal loan borrowers can withdraw funds from the loan account as per their sanctioned credit limit. The borrowing limit is usually sanctioned factoring in the credit profile, monthly income and cash flow statements of personal loan borrowers. The borrowers can withdraw from the loan account any number of times up to the sanctioned limit, and make repayments as per the availability of funds. The interest is charged only on the amount withdrawn, and not the entire overdraft limit. This makes personal loan overdraft facility an excellent loan option for those facing frequent cash flow mismatches.
Features of Personal Loan Overdraft Facility
1. Interest Rate
The interest rates for personal loan overdraft are charged only on the amount withdrawn and not the entire sanctioned limit. However, the interest rate levied on the amount is usually higher than the term loans. Thus, personal loan overdraft would be best suited for those capable of repaying their dues within very short periods, say 2-3 months.
Comparison of Personal Loan Interest Rates (Term Loan vs Overdraft facility)
|Banks/NBFCs||Interest Rates (p.a.)|
|Term Loan (Personal Loan)||Overdraft (Personal Loan)|
|Kotak Mahindra Bank||10.99% onwards||12.75%|
|Tata Capital||10.99% onwards||13.50%|
|Bank of Maharashtra||9.35%-13.70%||10.85%|
2. Credit Limit
Personal loan borrowers can borrow the loan amount only up to the sanctioned limit. The overdraft limit is sanctioned based on the credit profile, monthly income, cash flow statements, etc. The borrower can withdraw from the sanctioned credit limit any number of times and repay them in entirety or in parts as per their cash flows.
Lenders usually take around 2-7 working days to disburse the loan amount for personal loans from the date of application. The turnaround time for personal loan overdraft facility should be similar to that of regular personal loans. Some lenders also offer pre-approved personal loans to its select customers with quicker disbursal. Such lenders may also offer pre-approved overdraft facility to its select borrowers with instant disbursal.
Personal loan overdraft facility is usually offered for tenures of up to 5 years. However, some lenders might also offer overdraft facility for shorter tenures with the option of renewal at the end of the original tenure.
5. Repayment flexibility
Borrowers have the flexibility to repay their loan as per their cash flows. Some lenders require the borrowers to service the interest component on monthly basis.
6. Prepayment Charges
Unlike term personal loans, there is no repayment schedule in personal loan overdraft facility. Borrowers have the flexibility to repay the principal component as per the availability of funds without incurring any prepayment charges. As per RBI guidelines, lenders are not allowed to levy any prepayment charges on the applicants availing term personal loans at floating rates. However, they are free to levy prepayment charges for fixed rate personal loans.
Eligibility Criteria for Availing Personal Loan Overdraft Facility
The eligibility criteria set for personal loan overdraft facility and term personal loans is usually the same. The below-mentioned list might give you a rough idea of the personal loan overdraft eligibility.
- The borrower should be an Indian Resident
- Age at the time of loan application should be 21 years and at the time of loan maturity should be 65 years
- Employees of Public/Private sector companies, salaried doctors, self-employed professionals/self-employed non-professionals, employees of State/Central/Local Government are usually eligible for personal loan overdraft facility
- Borrowers having credit scores of 750 and above have higher chances of availing personal loans at lower interest rates
Documents Required for Loan Application
- ID proof: PAN card, Aadhar card, driving license,
- Signature proof
- Address proof
- Bank statements for past 6 months
- Last 3 months’ salary slips
- ITR/Form 16
- ITR for last 2 years along with P&L account, balance sheet and income computation for last 2 years
- Business Proof
- Form 26 AS, Income Tax Challan or TDS certificate (Form 16A) for income tax declared