How to apply for an overdraft

Understand the overdraft facility, how to apply overdraft online and what to expect once your overdraft facility is activated. Make informed decisions to manage your cash flow effectively.
How to apply for an overdraft
5 min read
29 January 2024

An overdraft facility is a financial arrangement that allows an account holder to withdraw more money from their bank account than the available balance. It serves as a short-term credit extension, providing flexibility and convenience for individuals and businesses to manage their cash flow. Essentially, an overdraft allows account holders to make transactions even when their account balance is insufficient, up to a predetermined limit.

What is overdraft facility?

An overdraft facility is a financial arrangement allowing account holders to withdraw more money than their available balance. It acts as a short-term credit extension, providing flexibility. Account holders can make transactions exceeding their balance, up to a predetermined limit, with associated interest and fees.

How to apply for an overdraft facility?

To apply for an overdraft facility, individuals or businesses need to follow a structured process:

  1. Eligibility check: Before initiating the application, potential applicants should assess their eligibility. Banks typically require a stable income source, a good credit history, and adherence to specific financial stability standards.
  2. Documentation: Gather all the necessary documents, such as proof of identity, address, income statements, and business details (if applicable). Accurate and complete documentation is crucial for a successful application.
  3. Visit the bank: Applicants can visit their bank branch in person to inquire about the overdraft facility or contact the bank's customer service for guidance. Some banks may also offer online application options.
  4. Fill out application form: Complete the bank's overdraft application form. Provide accurate personal or business details, financial information, and specify the desired credit limit. Clear and honest communication is essential during this stage.
  5. Credit assessment: The bank conducts a credit assessment to evaluate the applicant's creditworthiness. This involves scrutinizing financial history, income stability, and existing debts.
  6. Approval process: After the credit assessment, the bank decides whether to approve or decline the overdraft facility. If approved, the bank communicates the credit limit, terms, and conditions to the applicant.
  7. Activation and usage: Once approved, the overdraft facility becomes accessible. Account holders can utilize it by making transactions that exceed their account balance, up to the specified limit.

Note: While we do not offer an overdraft facility, we extend similar benefits through our Flexi Personal Loans. You can read more about it here.

Types of overdrafts

Overdrafts come in various types tailored to different financial needs. The most common are:

Personal overdraft: Offered to individuals, allowing them to withdraw more money from their account than the available balance, often for a fee or interest.

Business overdraft: Similar to personal overdrafts but tailored for business accounts, providing short-term funds to cover operational expenses.

Secured overdraft: Backed by collateral such as property or investments, reducing risk for the lender and potentially offering lower interest rates.

Unsecured overdraft: Not backed by collateral, typically carrying higher interest rates due to increased risk for the lender.

Planned overdraft: Agreed upon in advance with the bank, usually subject to a limit and associated fees or interest rates.

Revolving overdraft: Allows continuous borrowing up to a pre-approved limit, with interest charged only on the amount borrowed.

These overdraft types offer flexibility in managing cash flow and addressing short-term financial needs.

Also read - Overdraft vs personal loan

Bajaj Finserv Flexi Personal Loan

Utilising the Bajaj Finserv Flexi Personal Loan facility enables you to access funds through multiple withdrawals from your loan limit as needed and allows you to prepay the loan at your convenience. Notably, interest is only accrued on the utilised amount from the total sanctioned limit. Additionally, opting for the Flexi Hybrid Loan variant offers the benefit of paying interest-only EMIs during the initial period. Take advantage of our personal loan EMI calculator to estimate your EMIs in advance.

Benefits of a Flexi Personal Loan

Take a quick look at the advantages of a Flexi Personal Loan

  • With a Flexi Personal Loan, you only have to pay interest on what you have withdrawn and not the entire sanctioned amount.
  • As the amount is pre-sanctioned, you can withdraw from it instantly.
  • You can use funds from the loan as per your requirement — for personal, professional, planned, or unplanned needs.
  • As this facility simplifies borrowing and repaying, you can use this to build a good credit history and boost your credit score.

To avail of these benefits of the personal loan, apply for the Flexi facility offered by Bajaj Finance Limited.


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Frequently asked questions

How do you get approved for an overdraft?

Approval for an overdraft typically depends on factors like credit history, income, account activity, and relationship with the bank. Applying through the bank's channels is common.

What is the eligibility for an overdraft loan?

Eligibility for an overdraft loan varies but often requires a stable income, good credit history, and an existing bank account with the lender.

Is overdraft loan good or bad?

Whether an overdraft loan is good or bad depends on individual financial circumstances. It can provide flexibility but may incur fees and interest if not managed responsibly.

What is the overdraft limit?

The overdraft limit is the maximum amount you can overdraw from your account. It's determined by the bank based on factors like income and creditworthiness.

Does overdraft affect credit score?

Overdrafts can affect credit scores if they're not repaid promptly. Banks may report overdrafts to credit bureaus, potentially impacting creditworthiness.

How to get an overdraft loan?

To get an overdraft loan, approach your bank to inquire about eligibility criteria and application procedures. Provide necessary documents and information as per their requirements.

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