Need instant cash? India's overdraft facility might be your answer
What's the story
Need a quick cash boost without the hassle of a traditional loan? Overdraft facilities in India offer the perfect solution.
This financial safety net allows you to dip into your account beyond its balance, giving you the flexibility to manage unexpected expenses or short-term cash flow issues. Whether you're an individual or a business, an overdraft can be a game-changer, making financial management simpler and more efficient.
Let's dive into how it's become a go-to tool for many.
Mechanics
How overdraft works
An overdraft allows account holders to withdraw more than their balance up to a certain limit and for a specific period.
Interest is applied only to the negative balance utilized, not the whole amount like in loans.
Although rates are higher in OD, it provides the advantage of repayment flexibility within the stipulated timeframe.
Qualification
Eligibility criteria for overdraft
In order to be eligible for an overdraft facility in India, applicants need to fulfill certain requirements stipulated by their bank.
These typically involve possessing a positive credit history, demonstrating regular income or cash flow through their account, and potentially offering collateral based on the overdraft amount.
For businesses, they may be required to submit further documents like balance sheets and profit and loss statements to establish their financial stability.
Varieties
Types of overdraft facilities
There are primarily two types of overdraft facilities in India: secured and unsecured.
Secured overdrafts necessitate collateral like fixed deposits, property, or securities against the loan amount. Because they minimize the risk for the bank, they generally have lower interest rates.
Unsecured overdrafts do not necessitate any collateral. However, they have higher interest rates to compensate for the increased risk to lenders.
Management
Tips for managing an overdraft facility wisely
Handling an overdraft responsibly entails monitoring withdrawals and deposits to prevent exceeding your limit and incurring high fees.
It's intended for short-term use, not as a long-term solution, due to its higher cost compared to other forms of credit like personal loans or credit cards.
Establishing low balance alerts can assist in managing it more effectively.