Lending wisely is vital at a moment when interest rates are going up. Most folks take personal loans for urgent cases. On the other hand, an overdraft account at a bank may assist in carrying over all short-term financial demands while averting the disposal of other assets and investments. A bank will let an account owner withdraw funds in excess of the amount allocated in his account. The bank sets the credit limit relying on the account holder’s balance. The interest rate is based on the sum of the overdraft as well as the time.
What Exactly is an Overdraft Facility?
A personal overdraft is a service that allows users to withdraw cash as needed. Folks may use the facility up to a set limit on their current savings account & any pre-approved debt sum. Folks may make several withdrawals and refund the withdrawn cash whenever they choose. The most tempting aspect of an overdraft facility seems to be the interest. The interest is only paid on the sum used out of the full allowed limit. The overdraft limit is set by any lender or banking firm based on a user’s contact with the bank. Personal loan overdrafts are offered by both private and public lenders to meet a range of needs. It is a kind of short-term loan.
Personal Loan Overdraft Facility Features
1. Rate of Interest
Personal loan overdraft interest rates are paid solely on the sum taken, not the approved limit. Yet, the interest rate charged on the sum is often greater than the rate charged on term debts. Thus, personal loan overdrafts are most suited for folks who can return their debts in a short time, say 2-3 months.
2. Credit Limit
Folks in debt may only borrow up to the approved limit. The credit rating, monthly salary, cash flow reports, and other factors set the overdraft limit. The borrower may withdraw from the approved credit limit an endless number of times and return it in whole or in instalments based on their cash flows.
Bankers often need 2-7 working days from the date of request to release the debt sum for personal debts. Personal loan overdraft facility payback time must be close to normal debts. Some banks also give pre-approved loans with faster payout to a small group of buyers. Such banks may also provide pre-approved overdraft facilities with quick payment to select users.
Personal loan overdraft facilities are often offered for terms of up to 5 years. However, some banks may provide overdraft facilities for shorter terms with the chance of renewal at the end of the initial term.
5. Repayment choices
Folk may repay their debts as per their income. Certain banks ask folk to pay the interest monthly.
6. Prepayment Fees
Unlike term personal loans, personal loan overdrafts do not have a payback plan. Folks may return the major part when funds become ready without paying any late payments. As per RBI rules, banks cannot impose prepayment fees on those who take out term loans at variable rates. They may, however, impose prepayment fees on fixed-rate personal loans.
The Benefits of Using an Overdraft Facility
Aside from meeting short-term needs, an overdraft loan may also offer buyers the following perks:
- Get Quick and Rapid Cash
It enables users to get quick cash to suit their own needs. Folks may satisfy their urgent monetary needs with overdraft debt. The overdraft facility allows users to get a short-term debt against their savings account, fixed deposit, or salary account, as well as any pre-approved debt.
- Interest Rates That Are Fair
Any bank or lender may give them reasonable interest rates on their overdraft sum if folks have a decent credit score and a solid prior transaction record.
Folks enjoy taking what they need and paying interest only for the cash taken. For instance, if their permitted overdraft level is Rs. 20000 & folks have only taken and used Rs. 10000 for the whole term, they would only be charged interest on the taken sum of Rs.10000. Users may also opt to repay at their leisure within the time frame given.
- Paperwork is minimal
There is very little paperwork needed. Users already have a link with their lender so that they may go via a concise and minimum paperwork step.
- Aids in the Control of the Cash Flow
If users are facing a short cash crisis, a personal loan overdraft facility may assist them in managing their cash flow in unexpected events.
No EMIs are needed
Users are not needed to return the sum in EMIs in this case. As a result, there is no risk of missing their EMIs or having a check bounce owing to a lack of funding in their account. Folks may return the interest whenever it is suitable for them.
Papers Needed for a Loan
For Salaried Folks
- PAN card, Aadhar card, and driving licence are valid forms of identity.
- Proof of signature
- Address proof
- Salary slips over the past three months
- Bank reports over the past six months
- Form 16/ITR
- ITR for the past 2 years, as well as the P&L statement, balance sheet, & income estimate for the past 2 years
- Company Validation
- Use Form 26 AS, TDS certificate (Form 16A) or Income Tax Challan for income tax declared
Personal Overdraft Loan Eligibility Requirement
Below are the qualifying rules for the overdraft facility:
- Applicant must be a resident of India.
- Folks must be either paid or self-employed.
- The minimum age must be 21.
- The maximum age must be 65.
- Candidates should already have contact with the lender.
- A high CIBIL or credit score will be a benefit.
The personal loan overdraft facility allows folks to borrow cash over what is present in their bank account. While applying for the personal overdraft loan facility, folks and the lending firm in concern agree on an allowed debt sum. The debtor may repay the debt at their ease. Due to this, the Overdraft Loan facility is among users’ most common loan choices to cover various finance needs without regard to credit. Piramal Finance has similar blogs for people to help them get a personal loan. Give the blogs a read and check out the other services they offer.