Overdraft facility, a popular banking service in India, allows account holders to withdraw funds beyond their account balance up to a pre-approved limit. Banks offer overdraft facilities to individuals and businesses, providing them with a safety net for unexpected expenses or short-term cash flow gaps. This facility is typically secured against collateral, such as fixed deposits or property, and charges interest only on the utilised amount. By providing instant access to additional funds, overdraft facilities help account holders maintain financial flexibility and avoid late payment fees or penalties. Many Indian banks also offer unsecured overdraft facilities to salaried individuals based on their salary accounts. Similar to Indian banks, lendingkart offers business loans with attractive interest rates.
What is an Overdraft Facility?
An overdraft facility is a type of short-term credit arrangement offered by banks in India that allows account holders to withdraw funds beyond their account balance up to a pre-approved limit. This facility is particularly useful for individuals and businesses facing temporary cash flow shortages or unexpected expenses. The interest is charged only on the utilised amount, making it a cost-effective option for managing short-term financial needs. Overdraft facilities are typically secured against collateral, such as fixed deposits or property, although some banks also offer unsecured overdraft facilities to salaried individuals based on their salary accounts. By providing instant access to additional funds, overdraft facilities help account holders maintain financial flexibility and avoid late payment fees or penalties. Also in case of additional funds, individuals can also avail working capital loans.
Features of an Overdraft Facility
- Pre-Approved Limit: Overdraft facilities offer a pre-approved limit, allowing account holders to withdraw funds up to that amount.
- Flexibility in Repayment: Repayment of overdraft facilities can be done at any time, with no fixed repayment schedule.
- Collateral: Overdraft facilities are typically secured against collateral, such as fixed deposits or property, to reduce the risk for the lender.
- Unsecured Options: Some banks offer unsecured overdraft facilities to salaried individuals based on their salary accounts. Banks also offer MSME loans and MUDRA loans as per the individuals’ needs.
Know the benefits of an Overdraft
- Financial Flexibility: Overdraft facilities provide financial flexibility by allowing account holders to manage unexpected expenses or cash flow gaps.
- Avoiding Late Payment Fees: By providing instant access to additional funds, overdraft facilities help account holders avoid late payment fees or penalties.
- Cost-Effective: Overdraft facilities are a cost-effective option for managing short-term financial needs, as interest is charged only on the utilised amount.
- Convenience: Overdraft facilities offer convenience by providing instant access to additional funds and allowing account holders to manage their overdraft facility online or through mobile banking apps.
The Overdraft Limit
The overdraft limit is a pre-approved amount set by a bank that allows account holders to withdraw funds exceeding their account balance. This facility provides financial flexibility, enabling individuals and businesses to manage unexpected expenses or cash flow gaps. Banks typically secure overdrafts against collateral like property, fixed deposits, or equity holdings, offering competitive interest rates and convenient repayment options. The overdraft limit acts as a safety net, ensuring account holders can access additional funds when needed without incurring late payment fees or penalties.
Applying for an Overdraft Facility
If you are wondering how to avail overdraft facility, this section discuss about how you can avail overdraft facility –
Eligibility Check
- Stable Income Source: Applicants need a stable income source, good credit history, and financial stability to qualify for an overdraft facility.
- Documentation: Gather necessary documents like proof of identity, address, income statements, and business details for a successful application.
Application Process
- Visit the Bank: Applicants can visit the bank branch or contact customer service to inquire about the overdraft facility.
- Online Application: Some banks offer online application options for convenience and quick processing.
- Fill Application Form: Complete the bank’s application form with accurate personal or business details and specify the desired credit limit.
Credit Assessment and Approval
- Credit Assessment: The bank evaluates the applicant’s creditworthiness by scrutinising financial history, income stability, and existing debts.
- Approval Process: After assessment, the bank decides on approval, communicates the credit limit, terms, and conditions to the applicant.
Activation and Usage
- Accessibility: Once approved, the overdraft facility becomes accessible for transactions exceeding the account balance up to the specified limit.
- Utilisation: Account holders can utilise the facility for short-term financial needs, with interest charged only on the amount borrowed.
Different types of collateral accepted by banks against overdraft loans
- Residential/Commercial Property: Banks accept property as collateral for overdraft loans, ensuring the borrower’s financial stability and ability to repay the loan.
- Fixed Deposits: Fixed deposits can be used as collateral for overdraft loans, providing a secure source of funds for the borrower.
- Liquid Collateral: Liquid collateral, such as stocks or bonds, can be used to secure overdraft loans, offering a flexible and liquid source of funds.
- Salary: Salary can be used as collateral for overdraft loans, particularly for salaried individuals who have a stable income.
- Life Insurance Policy: Life insurance policies can be used as collateral for overdraft loans, providing a secure source of funds for the borrower.
- Equity Holdings: Equity holdings, such as shares or bonds, can be used as collateral for overdraft loans, offering a flexible and liquid source of funds.
Why Opt for Lendingkart for Best Financing Options?
Lendingkart offers a range of benefits that make it an attractive choice for businesses seeking financing options like business loans. With a superfast processing time of just 72 hours, Lendingkart provides quick access to funds without requiring collateral. The platform offers flexible loan tenures, minimal documents, and low interest rates, making it an ideal choice for small and medium-sized enterprises (SMEs). Additionally, Lendingkart’s commercial loan eligibility calculator helps businesses check their eligibility criteria and documents required for the loan process. With a strong reputation and being trusted by over 3,00,000 businesses across 4100+ cities, Lendingkart is a reliable partner for businesses seeking financing solutions. Whether it’s MSME loans or MUDRA loans, Lendingkart is there for you.
NOTE: No processing fees are being charged by Lendingkart before disbursement of the loan amount. Any individual claiming otherwise must not be entertained. Please report such activity on 