What is an Overdraft Facility?
An overdraft (OD) facility is a line of credit that banks and financial institutions provide to their customers. It allows you to withdraw money from your current or savings account, even if your account balance is zero. It acts as a pre-approved, short-term loan that offers immediate access to funds.
Unlike a standard loan, you only pay interest on the amount you actually use from your sanctioned overdraft limit, not the entire amount. This makes it a highly flexible and cost-effective solution for managing unforeseen expenses, short-term cash flow gaps, or emergencies.
How Does an Overdraft Facility Work?
Features & Benefits of Overdraft
An overdraft facility offers several advantages for managing your short-term financial needs.
Withdraw funds whenever required and repay at your convenience without a fixed EMI schedule.
You are only charged interest on the amount you withdraw, not the total approved limit.
The pre-approved nature of the facility ensures you have immediate access to cash for emergencies.
The available credit limit is restored as you repay the amount, providing a continuous source of funds.
Many overdraft facilities are unsecured, meaning you don't need to pledge any assets.
You can deposit funds into your account to reduce the outstanding balance anytime without penalties.
Eligibility Criteria for Overdraft
While eligibility criteria differ between lenders, here are some common requirements to qualify for an overdraft facility.
- Applicant must be a citizen of India.
- Age criteria typically range from 21 to 65 years.
- A stable source of income is required, whether salaried or self-employed.
- A good credit score and a healthy financial history are crucial.
- The applicant should hold a savings or current account with the lending bank.
- The specifics can vary based on the bank and the type of overdraft facility (secured vs. unsecured).
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