Several Indian banks offer their customers the option of an overdraft facility which enables them to borrow money. Customers can get an advance of up to three times their monthly salary via this service when the need arises. But the limits vary from bank to bank and depend on the customer’s financial condition. This option is beneficial at the time of a financial emergency as you are able to use it even when you have zero money in your bank account. A prepayment charge is usually levied when you prepay a loan. However, there are zero payment charges on the amount borrowed via overdraft facility.
Read More: India’s Services Sector Output Growth Hits 3-Month High in November on Strong Demand
Details about overdraft facility:
The overdraft option is like a short-term lending facility that allows the bank customers to take a small loan in order to get through problems. This facility is offered by state-owned banks, such as the State Bank of India (SBI) and private sector lenders like ICICI Banks. You can repay the overdraft whenever you have money available unlike how one usually repays a loan. You are not required to pay Equated Monthly Instalments (EMIs) with this option.
There is no minimum monthly repayment set on overdraft, but the owed amount needs to be within the overdraft limit. Your credit score is affected when you delay the overdraft payment for long.
Read More: PNB KYC Update Last Date 2022: Punjab National Bank customers must do THIS to keep accounts active
The interest charged on the amount of overdraft used is calculated every day, and it is billed to the account at the end of month. If one defaults on the overdraft prepayment according to the set schedule, then the interest amount is going to be added to the principal amount at the end of month, and the calculation of interest will be done on the new principal.
There are some terms and conditions that are applicable to the overdraft option. It should be kept in mind that not all salaried people are eligible to avail the benefit. Salaried individuals with a salary bank account are eligible to benefit from this option. Banks also check the credit ratings of their customers before they transfer the advance to their accounts. Different interest rates are often charged on advances made via the facility, ranging from 1 to 3 per cent.
