Overdraft Facility: Banks provide overdraft facility to some of their customers (preapproved) right from the beginning. At the same time, some customers have to take separate approval for this.
Overdraft Facility: You can withdraw as much money from the bank as you have deposited in it. The bank also gives you interest on the deposit according to the category of your account. This is a common procedure in banking practice. But, it is not like that at all. The bank allows its customers to withdraw a certain amount in case there is no money in the account. You can use this facility in case of sudden need. This facility is called ‘overdraft facility’.
What is this overdraft facility?
Overdraft Facility Actually, it is a type of loan. Due to this, customers can withdraw more money from their bank account than the current balance. The amount withdrawn in this has to be repaid within a certain period and interest is also charged on it. Interest is calculated on daily basis. Overdraft facility can be given by any bank or non-banking financial company (NBFC). What will be the limit of overdraft you can get, it is decided by the banks or NBFCs. That is, this limit can be different in different banks and NBFCs.
Banks offer overdraft facility to some of their customers (preapproved) right from the beginning. At the same time, some customers have to take separate approval for this. You can also apply for this through internet banking. Before applying for overdraft facility, make sure to know about the processing fee. Some banks also charge a processing fee for this service.
There are two types of overdraft facility
There are two types of overdraft facility, secured and unsecured. Secured overdraft is one for which some mortgage is kept as security. You can get overdraft on things like FD, shares, house, salary, insurance policy, bonds. Secondly, even if you do not have anything to provide as security, you can still avail the overdraft facility. This is called unsecured overdraft. Such as the facility of withdrawal from credit card.
Is overdraft facility better than personal loan?
Overdraft facility is a good option as compared to personal loan. If you take a personal loan, then the repayment has to be done in a stipulated time. If one repays the loan before the tenure, then he has to pay a prepayment charge. But, this is not the case with the overdraft facility. You can repay the money even before the stipulated period without paying any charges. The second advantage is about interest. In the overdraft facility, interest is also payable only for the time for which the overdraft amount has been with you. You can repay the money anytime within the stipulated period. Due to these things, it is cheaper and easier than taking a loan.
Overdraft facility: Know this condition
- Overdraft facility can be availed in a joint also. In such a situation, it will be the responsibility of both of them to pay the money. If one is not able to pay one amount, then the other will have to pay the full amount.
- There will be risk on the things pledged. If you are not able to pay the overdraft, then it will be reimbursed by the things pledged by you. But if the overdrafted amount is more than the value of the things pledged, then you will have to pay the remaining amount.
- Generally, banks also give overdraft against your salary account. This can be 2 to 3 times the salary.
- For this type of overdraft facility, your salary account should be in the same bank. From which you want to take overdraft.