If you need money in an emergency, you either use a credit card, borrow money from someone, or go for the option of a personal loan. But if you have a savings account in the bank, then you get a service from the bank through which your money is also arranged easily, and in return, you are not charged any processing fee. In terms of features, this facility can prove to be better than a personal loan in many ways. Know about it.

Understand what this option is

We are talking about the Overdraft Facility (OD) available from the bank. It is also called an overdraft loan. This is a financial facility, for which you have to get approval from the bank. If you get approval, then you can also withdraw more amount from your bank account than the existing balance.

What is OD

An overdraft facility is a type of loan. Most banks provide this facility on current accounts, salary accounts, and fixed deposits (FD). The amount taken through the overdraft facility has to be repaid within a certain period. Interest is also charged on it. Interest is calculated daily.

How is the limit of the amount decided

What will be the limit of the amount available under the overdraft facility, this is decided by the banks. Generally, if you take an overdraft facility on a salary account, then you can get double or triple the amount of salary as a loan. However, the facility of overdraft on a salary account can be given only by the bank in which your account is open.

Personal Loan Vs Overdraft Facility

Usually, when you take a personal loan, the interest is calculated on the entire amount for which approval is received. But this does not happen in overdraft loans. In this, interest does not have to be paid on the entire amount approved by the bank. You have to pay interest only on the amount you withdraw and use from your account.

Understand with an example.
Suppose the limit of the amount available under the overdraft facility has been fixed by the bank at two lakhs and you have used only one lakh rupees, then interest will be charged only on one lakh. But if you have taken a personal loan of 2 lakhs, then you will have to pay interest on it based on the entire 2 lakhs. Apart from this, in OD, the interest is charged only for the time for which the amount is with you. This means that the sooner you repay the loan, the sooner you will get rid of the hassle of installments.

No processing fee is required.
In OD, you do not have to pay processing fees, etc. for taking a loan. Whereas in a personal loan or any other loan, processing fees also have to be paid. Apart from this, one advantage of overdraft is that you do not have to pay prepayment charges etc. to repay the loan sooner. Whereas personal loans cannot be closed before the stipulated time. If you do so, then you have to pay a prepayment charge for it.

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