A personal loan overdraft option is a kind of line of credit facility where you as a personal loan borrower can make the fund withdrawal from your loan account according to the accepted credit limit. The borrowing credit limit is generally approved post considering your credit profile, cash flow statements and monthly income. You as a borrower can withdraw from your loan account at any time up to the limit sanctioned to you and make the repayments according to your available funds. The rate of interest is levied just on the amount withdrawn and not the whole overdraft limit. It makes the facility of personal loan overdraft a great credit option for you in case you are witnessing constant cash flow mismatches. Still not clear, consider if you are looking for a line of credit for your business and on thorough research come across HDFC overdraft. Now here, once you avail this facility from HDFC bank, you will receive a credit limit, just like your credit card limit, here too you can use your credit limit on your account for meeting your different monetary shortfalls with the only difference being in the case of credit card, no finance charges are charged if you make the repayment of your dues by the due date in full. However, in the case of a line of credit facility, you are charged an interest rate on just the credit amount you avail for your financial mismatches. Note that, in contrast, HDFC personal loan or a regular personal loan charges an interest rate on the entire loan proceeds, which is disbursed to you at once in your bank account.
What are the features of availing a personal loan overdraft facility?
Rate of interest
Personal loan rate of interest overdraft is levied just on the amount withdrawn and not on the whole sanctioned amount. However, the rate of interest charged on the amount is generally higher as compared to term loans. Thus, the personal loan overdraft option is best suited for you if you can repay your dues within short time periods, say two to three months.
Comparison of the personal loan rate of interest (term loan vs. overdraft option)
|Rate of interest (per annum)
|Term loan (personal loan)
|Overdraft option (personal loan)
|State Bank of India
|10.65 per cent – 13.65 per cent per annum
|11.15 per cent – 14.15 per cent per annum
|Kotak Mahindra Bank
|10.99 per cent per annum onwards
|12.75 per cent per annum
|10.99 per cent per annum onwards
|13.50 per cent per annum
|10.30 per cent – 10.80 per cent per annum
|11.30 per cent – 11.80 per cent per annum
|Bank of Maharashtra
|8.90 per cent – 14.70 per cent per annum
|11.85 per cent per annum
You as a personal loan applicant can borrow the loan proceeds just up to the approved limit. The overdraft limit is sanctioned to you based on your credit profile, cash flow statements, monthly income, etc. You as a borrower can withdraw from the disbursed credit limit at any time and repay the same in entirety or in parts according to your cash flows.
Lenders generally take nearly 2 to 7 working days to provide you with the loan proceeds for a personal loan from the application date. The personal loan overdraft option turnaround time is generally the same as any regular personal loan. Few of the lenders even provide pre-approved personal loans to you. Note that such loan options generally come with faster disbursal time. Also, such lenders provide pre-approved overdraft options to you if you are a select consumer instantly.
A personal loan overdraft option is generally provided for a repayment tenure of as high as 5 years. However, few lenders may even provide an overdraft option for a shorter repayment tenure with the choice of renewal towards the end of the tenure.
Flexibility in repayment
You as a borrower get the flexibility to make your loan repayment as per your cash inflows. Few lenders may require you to meet the interest constituent on a monthly basis.
Unlike a personal loan, there is a zero repayment schedule in the personal loan overdraft option. You as an applicant get the flexibility to make repayment of the principal constituent according to the fund availability with zero need for incurring any prepayment fees. According to the guidelines by RBI (Reserve Bank of India), lenders are not permitted to levy any prepayment fees if you are serving a floating-rate personal loan. However, they may be free to charge you prepayment fees if you are serving a fixed-interest rate personal loan.
What are the important eligibility parameters for opting for a personal loan overdraft option?
The eligibility parameter fixed for the personal loan overdraft option and the term personal loan are generally the same. Discussed below list may endow you with a rough idea about your eligibility linked with personal loan overdraft –
∙ You must be an Indian resident.
∙ Your age at the time of placing an application for the loan must be 21 years and at time maturity time of the loan must be 65 years.
∙ Employees of private and public sector companies, salaried individuals or self-employed professionals are generally eligible for the personal loan overdraft option.
∙ You as a borrower must have a credit score equaling 750 and above with higher chances of getting a personal loan at a lower rate of interest.
What are the important documents required for placing the loan application?
For salaried –
∙ Identity proof – Aadhaar card, PAN card or driving license.
∙ Signature proof
∙ Bank statements for the last six months
∙ Address proof
∙ Past 3 months’ salary slips
∙ Form 16 or ITR
For self-employed –
∙ ITR for the past two years along with the profit and loss account, income computations, and balance sheet for the past two years
∙ Form 26 AS, TDS certificate, income tax challan for the income tax declared
∙ Business proof
A personal loan overdraft option permits you to withdraw the amount of your preference at any time from the credit limit available to you according to your convenience. This makes it an extremely preferred credit route to mitigate your different kinds of personal financing requirements.