What is Overdraft Facility? Your Guide to Borrowing from Your Bank in India

In the whirlwind of managing finances, unexpected expenses can throw your budget off balance. That's where the overdraft facility in India comes in – a lifesaver that lets you borrow money from your bank even when your account balance dips to zero. But how does it work, and is it the right fit for you? Let's dive in.

Understanding the Basics of Overdraft Facility

What is overdraft facility? In simple terms, it's like a pre-approved loan linked to your savings or current account. This line acts as a buffer, allowing you to withdraw more than your available balance up to a specific limit. Think of it like an extension of your account, letting you "overdraw" funds when needed.

How does it work in India? 

Banks in India offer various overdraft options, each with its set of rules and eligibility criteria. Here's a general overview:

Benefits of Overdraft Facility in India

Things to Consider Before Using Overdraft Facility

Is Overdraft Facility Right for You?

The answer depends on your individual financial situation and spending habits. If you're disciplined and need occasional support for short-term needs, overdraft can be a valuable tool. However, if you struggle with managing credit or overspend regularly, it might not be the best option.

Here are some additional factors to consider:

Ultimately, understanding what is overdraft facility and its implications empowers you to make informed financial decisions. Use it wisely, and it can be a helpful bridge during challenging financial times. Remember, responsible borrowing is key to reaping the benefits of overdraft without falling into debt traps.

FAQs on Overdraft Facility in India

Eligibility criteria vary by bank, but generally, you need a good credit score, regular income, and a savings or current account with the bank.

Interest rates can range from 8% to 24% per annum, depending on your bank, creditworthiness, and loan amount.

Yes, you can use it for various needs, including medical bills, home repairs, or business expenses. However, it's best to avoid non-essential purchases to minimize interest charges.

Responsible usage with timely repayments can positively impact your score. However, missed or delayed payments can hurt your creditworthiness.

Consider personal loans, credit cards, or building an emergency fund depending on your needs and repayment capacity.

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