Things You Must Know About The Personal Overdraft Facility

A personal overdraft is a line of credit that enables individuals to withdraw funds as required. You may use it whenever you want. As a result, it is the most popular credit choice. The overdraft facility may be set up quickly. It aids in maintaining accurate records. Simply by making use of this wonderful and valuable option, your bank account will grow.

A bank overdraft is a credit line from a bank that allows you to borrow money even though your savings account balance is below 0. Is a personal loan more dependable than an overdraft? Both can help you get over a monetary crunch. You can get a personal loan from any financial institution; however, you can obtain an overdraft only from the bank with whom you have a savings or current account.

The balance in your current or savings account determines your overdraft amount as well as your banking relationship. However, the credit value of a personal loan is determined by your net income if you employ or your sales if you are self-employed.

Features of Overdraft Facility:

• An overdraft account is a service that you may obtain by keeping any bank account, whether a savings or a current account.

• For bank account holders, the minimum age requirement is 18 years, with a maximum age limit of 65 years.

• This service is available from several private sector banks for both salary and savings account clients.

• The money extension is provided based on the bank balance, repayment capacity, or credit score of the consumer.

• It is a type of bank-issued short-term credit that you must repay within a certain time, generally 12 months or less.

• Interest is charged on the credit amount or overdraft for the period it is used, ranging from a few days to a few weeks.

 5 things to keep in mind regarding personal overdrafts

1. No Collateral Required

The loan is approved similarly to other personal loans, but it is treated as an overdraft. A personal overdraft arrangement has no collateral. The nicest thing about a personal overdraft is that you may return and withdraw the money you borrowed with interest. 

When you have a personal overdraft loan, you may utilize your credit line wisely. It is the most user-friendly short-term lending solution.

2. Documentation Requirements

You simply need to bring the essential papers that you must upload at the time of loan acceptance, and the paperwork is low. 

Loan paperwork, salary proof documents, and KYC documents such as Pan Card, Passport, Aadhar Card, Voter Identity card, and Rent Contract are all examples of basic documents.

3. Repayment Options

Personal loans are less flexible than overdrafts. There are no set EMIs. You must repay what you have taken out with interest. You must pay the specified amount in EMIs every month. 

If you forget to provide it, it will have a direct impact on your credit score. Overdraft accounts are versatile in repayment since you may prolong the repayment period to suit your needs.

4. Quick Authorization as well as payment

Within 24-36 hours, the personal overdraft loan is authorized. When you need to use a certain amount, go to the bank, fill out the necessary papers, and send the money to your account. It's one of the easiest ways to get a loan.

5. Secured Liability of EMI's

The most astonishing feature of personal overdraft financing is that interest is limited to the amount borrowed and the time it takes to repay it.

Types of overdraft accounts

Overdraft accounts, like loans, are divided into unsecured and secured categories. The bank does not need any collateral or security for unsecured overdraft accounts. Secured overdraft accounts, on the contrary side, require account holders to provide collateral. The following are the several types of secured or collateralized overdraft accounts:

• Overdraft against fixed deposit accounts: Obtaining an overdraft against a fixed deposit is also significantly faster than obtaining an overdraft against a residential property. It requires very little paperwork, which speeds up the process significantly. If you have a fixed deposit with a certain bank and want to take out an overdraft against it with that same bank, the approval procedure will be even shorter.

• Overdraft covering a home loan: You can create a secured overdraft account by pledging your home. Customers who presently have a house loan and want cash to complete their home loan may get an overdraft against a housing property.

• Overdraft against salary: You do not have to be concerned if you don't have a home, insurance policies, or fixed deposits to use as collateral to obtain an overdraft. You can take out an overdraft based on your earnings.

• Overdrafts on insurance policies: You can use them to create overdraft accounts if you have insurance policies. The plan's amount of deposit determines the amount allowed to be overdrawn.

How does an overdraft affect personal loans?

If you need money, one of the first things that come to mind is taking out a personal loan. Nevertheless, after reading this essay, your opinion may change. For the services it provides, the overdraft is undervalued. Here are some reasons why an overdraft is a better alternative than a personal loan:

• Quick processing: If you don't have a pre-approved loan, the processing of a personal loan takes longer since it entails a lengthy procedure. It would also be preferable if you had a good credit score to get a personal loan for the amount you need. If your credit history is poor, your odds of getting your application accepted are little to none. In contrast to a personal loan, obtaining an overdraft facility is faster and easier, and so the former comes in useful during times of need.

• Versatility: When it comes to repaying personal loans, you must be quite prompt. During the repayment period, you will be required to pay a predetermined monthly amount in equivalent monthly installments. Your credit score will suffer as a result of your failure to do so. Overdraft accounts, but on the other hand, allow you to be more flexible with your repayments. You can spread your payments out over a longer period if that is more convenient for you.