What is an overdraft Facility: We all may have a sort of situation where we do need money all of sudden for any emergency and the only way to have some is to take a loan. Because in India, very few of us have savings or emergency funds. Taking a loan has become an easy task for people as banks offer pre-approved loans to their customers nowadays. But, the thing is, if you take a personal loan, you pay a lot of interest as it is the loan with the highest interest rate. In such emergencies, when you run out of money, you can also avail of the overdraft facility instead of a personal loan. It can be more interest rate friendly and you can have less burden of repayment.
What is an overdraft facility?
Almost all banks – whether private lenders or public sector lenders – offer overdraft facilities to their customers. The majority of banks offer overdraft facilities on current accounts, salary accounts, or against fixed deposits. Many banks also provide overdraft facilities to their account holders against shares, bonds, and insurance policies. Like a loan, an overdraft facility is a way to withdraw money from the bank when needed and return it later.
Read More: PM Jan Dhan Yojana: These accountholders would require re-KYC soon; check how to update KYC
How to take an overdraft
Some customers already get the overdraft facility, while others need to obtain approval from their respective banks. Customers can apply for this facility online or in person. Overdraft facilities are of two types, secured and unsecured. A secured facility means that before taking the money as security, you can avail of overdraft facility from the bank on the basis of shares, bonds, FD, house, insurance policy, salary, or by mortgaging it. On the other hand, if we talk about unsecured overdraft facility, it is availed of when you do not have anything to mortgage and need money. In such a situation, money can be taken from the bank without security.
Read More: Several Trains Delayed On Major Routes As Fog Disrupts Services Across North India; Check List
How much money can be withdrawn in overdraft?
Every bank has its own rule for this. It entirely depends on what security you have pledged with the bank. Most banks provide more money for overdraft facility against salary and FD and also keep a higher limit. If your payment history is good, then banks provide two to three times the amount of your salary in overdraft.
You may pay less interest
Taking money through overdraft is cheaper than any credit card or personal loan. In overdraft, you have to pay less interest than other loans. Also, you have to pay interest on the money withdrawn only for the time period for which you take the money.
