What is an Overdraft Facility?

A personal overdraft is a facility that allows you to withdraw funds as per your needs. The facility can be availed up to an approved limit against your existing savings account in a bank or against any pre-approved loan amount. You can do multiple withdrawals and repay the withdrawn amount at your convenience. The most attractive feature of an overdraft facility is that the interest amount is only charged on the utilized amount out of the total approved limit. Any lender or banking intuition determines the overdraft limit based on a customer's relationship with the bank. A personal overdraft facility is offered by both private and public lenders to meet your diversified personal requirements. It’s a type of short term loan

Key Features of Personal Overdraft

A personal overdraft facility comes with a number of attractive features that include the following –

Benefits of Availing Overdraft Facility –

Apart from meeting your short term requirements with an overdraft loan, you can also enjoy the following benefits –

Documentation Required for Availing An Overdraft Facility

Generally, your lender may ask you to submit the following documents and complete your KYC check while applying for an overdraft facility -

***Please note that the documentation process may vary from lender to lender.

Eligibility Criteria for a Personal Overdraft:

The eligibility criteria for overdraft facility is mentioned below:

Apart from salaried and self-employed individuals, Private Sector Firms, Proprietorship firms, Limited Liability Partnerships, and Public or Private limited Entities can also avail overdrafts. Please note that the eligibility requirement for a personal overdraft may slightly vary from lender to lender. You are advised to check with your lender directly before applying for an overdraft.

Types of Overdraft loans: Benefits of Availing Overdraft Facility –

Overdraft loans are usually divided into types –

How to Avail An Overdraft facility:

It’s quite simple. You can avail of an overdraft by using various online channels and also manually. The quick and fastest way of applying for a personal overdraft is to use the online mode.

Interest Fees and Other Charges

The interest fees and other charges applicable on an overdraft may vary from lender to lender. Besides, there shall be further variation between interest rates offered by banks and NBFCs.

Overdraft Facility vs Loans

Any personal overdraft is an arrangement between you and your lender where your lender allows you to withdraw a particular amount depending on its relationship with you. It’s a type of credit that has been granted to you to meet your unplanned or urgent short-term requirements. On the other hand, a loan is a type of debt that you take for a particular tenure to meet your long-term or short-term requirements. Mentioned below are a list of difference between an overdraft and loans:

Overdraft Facility Loans
It’s a line of credit It’s a type of borrowed capital
Pay interest only on the used amount Pay interest for the entire borrowed amount
Interest is calculated on daily basis Interest is calculated on a monthly basis. It can be either fixed or adjustable.
Flexible repayment tenure. No EMIs required. Flexible but you need to repay using EMIs.
Processing fee may not be mandatory. Not all lenders charge processing fees. A one-time processing fee is applicable.
It’s a short term credit/fund issued for a short duration Any loan can be taken for either short term or long term.
Prepayment penalty may not be applicable. It depends on the lender. Prepayment penalty is applicable

Frequently Asked Questions (FAQs)

KYC stands for Know your Customer. This is a process used by banks and NBFCs to verify customers’ identities. You can complete your KYC process by using Aadhaar-based and In-Person-Verification (IPV)

  • E-KYC refers to the online process of doing KYC which can do with your Aadhaar OTP received in your registered mobile no.
  • Your address proof and identity proof with your photo attached are two primary documents required to complete the KYC process for any financial transactions.

Yes, an overdraft loan can be availed jointly where the co-application/borrower shall be equally responsible to repay the withdrawn amount.

Yes. You can apply for an overdraft against your existing fixed deposit account and get it approved with minimal documentation. Here, the approved limit is usually less than the total value of your fixed deposit amount. You can get 90% of the total value of your term/fixed deposit.

Here, a line of credit shall be pre-approved by your bank or lender so that you can withdraw funds up to the maximum approved limit as and when you need. And the withdrawn amount will be considered as an overdraft which you need to repay as per your convenience than the total value of your fixed deposit amount. You can get 90% of the total value of your term/fixed deposit.

If your requirement is for the short term and you need some urgent cash to meet your temporary cash crunch, then you can opt for an overdraft. As this is faster and quicker than applying for a loan.

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