An overdraft facility is a flexible financial tool allowing individuals to withdraw funds up to a pre-approved limit, with interest only charged on the amount used and for the duration of its use. Unlike personal loans, it offers no fixed repayment schedule, allowing borrowers to repay at their convenience without prepayment penalties. To obtain this facility, applicants must provide various documents, including proof of identity and income.

1. Everything you need
to know
Overdraft Facility

2. What is Overdraft facility?
• Overdraft facility is a financial tool that helps you with financial resources in a
flexible manner. You can withdraw funds to the extent of set agreed limit. Some
private lenders besides banks provide overdraft facilities for salaried
professionals.

3. How does Overdraft facility work?
You have an overdraft facility of ₹1,00,000 and use only ₹20,000 for 20 days;
then, you need to pay interest only on ₹20,000 and only for 20 days. The amount
sanctioned for the overdraft is attached to your savings or current account. You
can make multiple withdrawals within the pre-approved limit. The overdraft limit
is reset every time you make a payment to the lender.

4. Features of Overdraft
• Credit limit - The overdraft facility for salaried amount varies from person to
person. The amount is predetermined based on the applicant’s eligibility. You
can overdraw your account up to your sanctioned limit. The credit limit
decreases with every withdrawal and is reset with every payment received.
• No prepayment charges - In overdraft facility you can make the payment when
you like and pay interest only for the period you use the amount. You have the
option to pay the amount in parts or cumulatively.

5. • Rate of Interest –
An applicant has an overdraft facility of ₹1,00,000 and he uses ₹20,000 for 20
days.
The revised balance of overdraft limit is now ₹80,000.
After 20 days when the applicant repays ₹20,000 his limit is reset to ₹1,00,000.He
pays interest on ₹20,000 for 20 days only.
• No concept of EMI - You can make repayments at any time and in any
denomination. The overdraft facility is a dynamic balance facility.

6. Benefits of Overdraft facility
1. You will need to pay interest only on the amount you utilize and for the
period for which you borrow the money.
2. You are not liable for a fixed or minimum payment every month. You can
repay at your convenience.
3. the rate of interest is calculated on daily reducing balance method.
4. You can choose to discontinue this facility at any point of time at minimal or
no charges. In other forms of personal loan, you may have a certain lock-in
period.
5. The rate of interest is lower than that for credit card or personal loans.

7. Documents req. for Overdraft facility
• Permanent Account Number (PAN)
• Address proof such as ration card, Aadhar card, passport, electricity bill
• Three months’ pay slips
• Six months’ salary account bank statement
• E-NACH mandate form

8. Personal Overdraft vs Personal loan
• While instant personal loan can help you with planned financial
requirements, they may not help meet all your fiscal needs. If you have a
planned expenditure with fixed tenures, personal loans are your best
option.
• Overdraft facility offers the convenience of extremely flexible repayment
options which allow you to pay back the money withdrawn at your
convenience. You do not have the liability of an EMI. The burden of
interest payment is restricted to usage under overdraft facility.

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