Overdraft loan can also be a smart way to meet the need of money in emergency. Overdraft loan facility is available in both government and private banks. It has many benefits. Know here
Overdraft Loan Benefits: An emergency situation can occur at any time and to anyone. Generally, in this situation, people either choose the option of personal loan or fulfill their needs by breaking any of their FDs etc. But overdraft loan can also be a smart way to meet the need of money in emergency. Overdraft loan facility is available in both government and private banks. It has many benefits. Know here-
What is overdraft loan?
Overdraft is a financial facility. For this you have to take approval from the bank. If you get approval, you can withdraw more amount than the current balance from your bank account. This facility is also called overdraft facility and OD. This is a kind of loan. Most banks provide this facility on current account, salary account and fixed deposit (FD). The amount taken through overdraft facility has to be repaid within a fixed period and interest is also charged on it. Interest is calculated on daily basis.
Banks decide the limit of amount
The banks decide what will be the limit of the amount available under overdraft facility. Generally, if you avail overdraft facility on your salary account, you can get double or triple the amount of salary as loan. But the facility of overdraft on salary account can be provided only by that bank in which your account is opened.
Benefits of overdraft loan
There are not just one but many benefits of OD. Generally, when you take a personal loan, the interest is calculated on the entire amount for which you get approval. But this does not happen in overdraft loan. 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 from your account and use it.
Understand for example – if the limit of the amount available under overdraft facility has been fixed by the bank at two lakhs and you have used only one lakh rupees, then the interest will be charged only on one lakh rupees.
Apart from this, interest is charged only for the period for which you have the amount. Meaning, the sooner you repay the loan, the sooner you will be free from the hassle of installments. To repay the loan early, you do not have to pay prepayment charges etc. Whereas personal loans cannot be closed before the stipulated time. If you do this, you have to pay prepayment charge for it. In OD, you do not have to pay processing fees etc. for taking loan. Whereas in personal loan or any other loan, processing fee also has to be paid.
How to avail the benefit of OD facility
For overdraft facility, you have to pledge your FD, shares, house, salary, insurance policy, bonds etc. If you are unable to repay the amount, it is compensated from your mortgaged property. But if the overdrafted amount is more than the thing pledged by you, then after making up for it with the thing pledged, you will have to repay the remaining amount. However, if you do not have anything to pledge, you can also avail unsecured overdraft facility in the form of withdrawal from the credit card.