OD Loan Facility
An Overdraft Loan Facility is an excellent option for those who require occasional access to extra funds without the hassle of applying for new loans every time.
💳 What is Overdraft (OD) Loan Facility?
An Overdraft (OD) Loan Facility is a form of revolving credit provided by banks or financial institutions that allows individuals or businesses to withdraw funds beyond their actual account balance, up to a predefined credit limit. This facility helps in managing cash flow gaps, meeting short-term working capital needs, and addressing unforeseen expenses with immediate access to funds.
⚙️ How Does an Overdraft Loan Facility Work?
Understanding how a Overdraft loan works can help you make informed financial decisions:
- 📝Application:
To avail an overdraft facility, the individual or business must apply through their bank. Approval depends on several factors including the applicant’s credit score, income stability, existing relationship with the bank, and financial background. - 💰Credit Limit:
Once approved, the bank sets a credit limit for the overdraft facility. This is the maximum amount that can be withdrawn from the current account, even if the balance is zero or negative. The limit is decided based on the applicant’s financial profile, income level, and risk assessment. - 💳Withdrawal:
The account holder can withdraw money anytime up to the sanctioned credit limit. This allows users to access extra funds instantly for emergencies or operational requirements, providing much-needed liquidity and financial flexibility. - 🏦Disbursement:
The disbursed amount is not fixed and can vary as per usage. Importantly, interest is charged only on the withdrawn amount, not on the entire credit limit. Interest is calculated daily or as per bank norms and is applied only for the number of days the amount remains utilized. - 💸Repayment:
There is no rigid EMI schedule for OD facilities. Borrowers can repay the used amount and interest anytime during the agreed tenure. Most repayments happen automatically as funds are credited into the account, or based on flexible repayment terms set by the bank. - 📊Interest:
The applicable interest rate may be fixed or floating, depending on the bank’s policy and market conditions. This makes OD facilities relatively cost-effective, especially for short-term usage, compared to traditional loan options. - 🔄Flexibility: One of the biggest advantages of an overdraft is its repayment and withdrawal flexibility. Borrowers can utilize, repay, and reuse the sanctioned limit multiple times, making it an ideal solution for fluctuating cash flow needs. Also, no prepayment penalty is charged.
- 🔐Security:
Overdraft facilities may be secured or unsecured, depending on the borrower’s creditworthiness and the bank’s policies. Secured overdrafts may require collateral, such as fixed deposits, securities, or property, to mitigate the bank’s risk. - 🔁Renewal:
Overdraft facilities are usually provided for a fixed term, after which they can be renewed or reviewed by the bank. Renewal depends on the borrower’s account performance, financial condition, and updated creditworthiness. Banks may also revise the credit limit during renewal.
🌟 What are Benefits of Overdraft Loan Facility ?
📌 Our Approach!
An Overdraft Loan Facility is an excellent option for those who require occasional access to extra funds without the hassle of applying for new loans every time. Whether you’re a business managing seasonal fluctuations or an individual facing an unexpected expense, an overdraft provides the financial cushion and control you need.