Are you looking for a financial product that allows you to access money from your savings or current account, even if your account balance is zero? Look no further than an overdraft facility offered by various Private and Public Sector Banks. An overdraft facility is a type of short-term loan with a repayment tenure as stipulated by the lender. Banks can choose to offer both fixed and variable interest rates depending on their terms and conditions. With an overdraft facility, you will have the flexibility to access funds when you need it and repay it within the defined tenure.
Applying for an Overdraft Facility
Borrowing through an instant overdraft is an easy and convenient way to access funds. Unlike traditional loans from Banks and NBFCs, customers who are pre-entitled to an overdraft facility can access funds automatically when their account balance falls into the negative. For those who require approval, submitting a request is just as easy – either in writing or through the lender’s official website.
When it comes to security, overdrafts can be either secured or unsecured. An unsecured overdraft does not require any collateral, while a secured overdraft requires some form of collateral to be pledged against the loan.
No matter what the situation, borrowing through an instant overdraft is the perfect solution when you need extra money in a hurry.
Features
- Approved Credit Limit: Overdraft is awarded over a predetermined limit. This limit can be different for each borrower
- Interest Rate: The interest rate is charged on the amount of funds used. It is calculated on daily basis and it is billed to the account at month-end. If you default on paying the overdraft as per the set schedule, the interest amount will be added to the principal amount at the month-end and then interest will be calculated on the new principal
- Nil prepayment charges: Whenever you want to prepay a loan, usually a prepayment charge is levied. However, this is not the case with the overdraft facility. When you repay the amount borrowed through overdraft you do not pay prepayment charges. Also, you need not repay the Overdraft amount in EMIs. You can repay the borrowed amount cumulatively
- Repayment is not done through EMIs: Repay the overdraft whenever you have the money. You do not have to repay the overdraft amount like you repay a loan. You do not have to repay in Equated Monthly Instalments (EMIs). You can repay whatever amount you like whenever you like. However, if the lender demands a repayment, then you will have to fulfil that demand
- Minimum Monthly Payment: Overdraft has no minimum monthly repayment however the amount you owe should be within the overdraft limit. You should not delay overdraft repayment for long, as it affects your credit score
- Joint borrowers are allowed on Overdraft: If you take an overdraft jointly then you and your joint applicant are both, in effect, responsible for the entire debt. Irrespective of the proportion of overdraft borrowed, both the applicants are responsible for the timely repayment of the overdraft. This means that if one of the borrowers is unable to pay/defaults, then the other borrower has to pay the entire amount. In such a case, irrespective of the overdraft proportion of joint borrowers, all collaterals of each of the borrowers are at stake if a default occurs
- Workings: Please note that your account may not automatically go into overdraft when you write a cheque. There are chances that your cheque is dishonoured instead of going into overdraft and then a dishonour charge may be levied on your account
How does OD work
If you get an overdraft account sanctioned from the bank then you will receive the requested overdraft amount just like you receive a loan amount from the bank. If you are pre-approved for the overdraft facility, whenever you need funds, you can withdraw them from your bank account and it will go into overdraft. You can overdraw funds through your account up to an agreed limit. By utilizing the overdraft facility you basically increase the outstanding on your bank account; when you deposit funds, the outstanding decreases.
From the time you borrowed until you repaid, you will be charged interest by your bank. In an overdraft, you can repay money to the lender, fully or partially, whenever you want to. After repaying whenever you have money, you can again withdraw money from your account as per your need until the limit of the overdraft is reached. When a borrower uses the overdraft facility through his/her bank account, the bank doesn’t have collateral against it.
However, if the borrower takes an overdraft against his/her assets as collateral then it is a secured overdraft. These assets can be the funds in your account and even your house, insurance policies, fixed deposits (FDs), shares, bonds etc. Also, note that the interest rates charged and overdraft amounts sanctioned by banks vary depending on the collateral. Interest on the overdraft amount is calculated daily because the overdraft amount is not repaid as per a set schedule. The borrowed amount can be repaid without prior intimation by the borrower.
Just depositing funds in your bank account reduces your outstanding balance and thus reduces your overdraft amount. So, the interest applicable to the borrowed amount needs to be calculated daily since the borrowed amount ledger can change daily. As explained the overdraft facility is just a revolving short-term credit facility. Avail this feature, if you need funds to overcome financial needs and repay them ASAP so that your interest pay-out doesn’t pile up.
8 Differences between Term Loan and Overdraft
| Term Loan | Overdraft |
| It’s a type of borrowed capital or funds | It’s a type of credit line facility |
| Interest rate is calculated on a monthly basis | Interest rate is calculated on a daily basis |
| Interest rate is charged over the loan amount | Interest rate is charged only on the utilized amount |
| Term loan can be availed to repay on time with added interest rates | Overdraft can be availed even if the account balance is zero |
| Loans can be repaid in long-term | Overdraft is availed for short-term |
| The rate of Interest is fixed or floating | The rate of interest is fixed for at least 12 months |
| Maintain a current account is not a mandate | Compulsory to maintain current account |
| Repayment type is in form of EMIs | Repayment in cash or from bank deposits |
Overdraft from Leading Banks/NBFCs – March 2023
Overdraft from HDFC Bank for Salary Plus
| Interest Rate | 15% – 18% p.a. (For Salary Pus) |
| Loan Amount | 3 times of salary |
| Loan Amount Limit | Rs. 25,000 – Rs. 1.25 lakh |
| Repayment Tenure | 12 months, can be renewed |
| Limit Processing Charges | Up to Rs. 1500 |
| Foreclosure charges | Nil |
| Penal Interest | 2% per month over payable interest |
| Renewal Charges | Rs. 250 + taxes at the time of renewal |
| Prepayment Charges | Nil |
| Annual Maintenance Charges | Nil |
Overdraft from Tata Capital
Personal Loan Overdraft – Highlights
| Interest Rate | 13.50% p.a. onwards |
| Age Criteria | Min. 22 years and Max. 58 years |
| Loan Amount | Min. Rs. 2 lakh & Max. Rs. 35 lakh |
| Repayment Tenure | From 12 months to 84 months |
| Processing Fee | Up to 3% of the loan amount + GST |
| Penal Interest | 3% per month over payable interest + GST |
| Foreclosure Charges | 4.5% on the Dropped down limit amount + GST |
| Cancellation charges | 2% of the loan amount or Rs. 5750, whichever is higher + GST |
| Minimum Monthly Income | Rs. 35,000 |
| Work Experience | Min. 2 years and 6 months in same job |
Overdraft from SBI
SBI offers Overdraft (OD) account against your existing NRE / NRO deposit through internet banking.
Overdraft limit is not allowed to be changed by the customer. Below are the key features and highlights:
- TDR/eTDR – 75% of the face value of deposit
- STDR/eSTDR – 90% of the face value of deposit
| Interest Rate | 1% above the relative time deposit rate |
| Loan Amount | Up to 90% of the value of Time Deposit |
| Loan Amount Limit | Min. Rs. 25,000 – Max. Rs. 5 crore |
| Processing Fee | Nil |
| Prepayment Charges | Nil |
| Collateral/Security | Security Lien on underlying Time Deposit |
FAQs
Q1. Which bank provides an overdraft facility?
Ans: Almost every public or private sector bank in India provide Overdraft facility to its customers. However, the minimum and maximum loan amount, interest rate and repayment tenure set by banks may differ and shall depend on the applicant’s profile, financial history and repayment capacity.
Q2. Can I withdraw money from Overdraft?
Ans. Yes, Overdraft is a credit facility that allows borrowers to utilize money in portions from the total sanctioned limit.
Q3. What happens if I can’t pay my overdraft?
Ans. If you are unable to pay the outstanding overdraft amount, then the bank has the right to deduct the balance from your existing savings or current account.
Q4. How long can a bank account be overdrawn?
Ans. The time duration of a bank account to be overdrawn is defined by the bank itself and depends on the relationship of borrowers with the respective bank.
Q5. What is the treatment of a bank overdraft on a balance sheet?
Ans. A bank overdraft is as same as a bank account that can have a negative balance, up to the sanctioned overdraft limit. Example: If your bank account has Rs. 10 lakh in the bank and you withdraw Rs. 12 lakh for business purposes, an overdraft loan is a by-default loan for the extra Rs. 2 lakh. By withdrawing Rs. 12 lakh from your bank account, the balance will be zero and further even negative. Banks will charge an interest rate on an extra amount borrowed of Rs. 2 lakh.
Q6. Who can offer Overdraft facility?
Ans. An overdraft can be offered by most of the financial institutions and some of the leading banks include SBI, HDFC Bank, Axis Bank, ICICI Bank, Punjab National Bank, etc.
Q7. What is a salary overdraft from a bank?
Ans: Salary Overdraft is an overdraft feature that is extended against the salary account of the account holders. This facility enables the salaried account holders to withdraw amounts or issue cheques even if their account balance is zero. Salary Overdraft facility is a type of short term personal loan offered only to salaried people or employees who hold salary accounts.
Q8. Who can avail overdraft facility?
Ans: Overdraft facility can be availed by the borrower on a secured or unsecured basis. The borrower can be individuals, self-employed professionals, enterprises, etc. in case of an overdraft facility. If it is a salaried overdraft, then it cannot be used for business purposes and can be availed only by salaried employees.
Q9. What is a salary overdraft from a bank?
Ans. Salary overdraft is an overdraft facility sanctioned against salary account for only selected salary account-holders of the respective bank. These account holders have an additional advantage of issuing cheques for exceeding the amount from which is maintained in their present account.
Q10. Can the Overdraft facility be availed through Internet Banking?
Ans. Yes, most of the banks offer this facility online as well, however, you need to check online or on their mobile app for your respective bank.
Q11. Who is eligible for the Overdraft facility?
Ans. Applicants that already have existing savings or current accounts with the bank are eligible for an overdraft facility. The minimum tenure of an operational account shall be defined by the bank.
Q12. How many salary credits are required in my existing account to qualify for Overdraft?
Ans. There are no minimum salary criteria to qualify but salary should be regular on a monthly basis by the company. The company transferring salary should be listed with the bank.
