An overdraft facility is a flexible financial arrangement that allows you to withdraw more funds than your available account balance, up to a pre-approved limit. It essentially acts as a short-term credit line, helping individuals and businesses cover urgent expenses or manage temporary cash flow gaps with ease.
Unlike traditional loans, an overdraft loan doesn’t require a separate loan application every time you need funds. Instead, the approved limit is linked directly to your existing savings or current account, enabling quick and easy access to money whenever required.
For salaried individuals, a personal overdraft loan can be particularly useful. It offers immediate liquidity during emergencies like medical expenses, utility bills, or unexpected travel needs. Since the interest is charged only on the utilised amount and for the duration of use, it often works out to be more cost-effective than a standard loan.
If you’re looking for a convenient way to meet short-term financial requirements without the hassle of repeated approvals, an overdraft loan for salaried professionals can be a smart solution. It combines the benefits of easy access, flexible repayment, and interest-on-use, making it a practical choice for day-to-day financial stability.
What is overdraft facility?
An overdraft facility is a type of short-term credit that lets you withdraw funds beyond your account balance, up to a pre-set limit. This credit line proves useful during urgent cash needs. To understand the overdraft facility meaning better, explore how an overdraft facility can offer quick access to funds, similar to an instant overdraft loan, with interest applicable only on the utilised amount. Keep in mind, regular repayments help avoid OD facility due charges.
How to apply for an overdraft facility?
To apply for an overdraft facility, individuals or businesses need to follow a structured process:
- 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.
- 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.
- 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.
- 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.
- Credit assessment: The bank conducts a credit assessment to evaluate the applicant's creditworthiness. This involves scrutinizing financial history, income stability, and existing debts.
- 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.
- 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.
Types of overdrafts
Overdrafts come in various types tailored to different financial needs. The most common are:
- Personal Overdraft:
A personal overdraft is a facility extended to individual account holders, allowing them to withdraw funds beyond their available balance. It is often used to manage sudden personal expenses like medical emergencies, travel bookings, or bill payments. The borrowed amount attracts interest or fees based on usage. This facility can be pre-approved or applied for, depending on the bank’s policy and the individual’s creditworthiness. - Business Overdraft:
A business overdraft works similarly to a personal overdraft but is designed specifically for business accounts. It helps enterprises manage day-to-day working capital needs, such as paying vendors, purchasing inventory, or handling payroll during low cash-flow periods. Interest is charged only on the overdrawn amount, offering businesses flexible short-term financing without the need to apply for a new loan each time. - Secured Overdraft:
A secured overdraft is backed by collateral-like property, fixed deposits, or investments. Because there is an asset involved, banks view it as a lower-risk lending option and may offer more favourable interest rates and higher withdrawal limits. This type of overdraft is ideal for those who need a larger credit limit or want to reduce their borrowing cost. - Unsecured Overdraft
Unlike the secured version, an unsecured overdraft does not require any collateral. It is typically approved based on the borrower’s income, credit history, and repayment capacity. While it offers convenience, the interest rates tend to be higher due to the increased risk for lenders. It’s best suited for short-term, small-ticket needs where immediate liquidity is required. - Planned Overdraft
A planned overdraft is an overdraft facility that’s pre-arranged with the bank. The limit, interest rate, and repayment terms are agreed upon in advance, offering clarity and control over the borrowed funds. It is less costly than an unplanned overdraft and ensures that the account holder stays within the set borrowing boundary, avoiding extra charges. - Revolving Overdraft:
A revolving overdraft allows continuous access to funds up to a fixed limit. As you repay the used amount, your available limit is restored, similar to a credit card. Interest is charged only on the amount used and for the number of days it was used. This option provides long-term flexibility and is useful for both individuals and businesses with recurring cash flow needs.
These overdraft types offer flexibility in managing cash flow and addressing short-term financial needs.
Also read - Overdraft vs personal loan
Features of Overdraft facility
- Flexible Withdrawals: Withdraw funds beyond your account balance up to the approved OD limits, offering ease during cash shortages.
- Interest on Utilised Amount: The overdraft interest rate is charged only on the amount used and for the number of days it’s used.
- No Collateral for Salaried: Many banks offer an overdraft facility for salaried employees without requiring any collateral, making it accessible and convenient.
- Revolving Credit: Repay and reuse the facility within the sanctioned limit, ensuring continued liquidity.
- Quick Access: Instant approval and fund availability through net banking or mobile apps.
Bajaj Finserv Flexi Personal Loan
Utilising the Flexi loans 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.
