Instant Access to Funds with a Personal Loan Overdraft

Life is a bumpy road. Sometimes you are doing well financially, and the next minute, there comes an obligation that you never prepared for. It could be a hospital emergency, a broken appliance at your house, or an urgent travel need. People are left stumbling for cash in such unexpected scenarios. Most loan processes take days or even weeks to complete, and in such situations, no one has time to wait. This is when the personal loan overdraft can save.

What is an overdraft facility? How can it help you when you need finances? Can it give you immediate access to money? In this blog, we will break down everything you need to know about overdraft facilities and explain how they provide flexibility and speed to help you manage unexpected expenses.

What is Personal Overdraft Facility?

Personal Overdraft facilities are financial facilities offered by banks or financial institutions in which you will be allowed to withdraw more funds than you possess in your accounts, up to some determined limit. Well, it would be like the extra buffer zone; it gives temporary access to extra funds that you may need at particular times. According to a Reserve Bank of India report, about 25% of Indian bank account holders use overdraft facilities mainly during emergencies or short-term financial requirements.

For instance, suppose you have 42,000 in the savings account and you have an overdraft facility of 1 lakh. You can withdraw 1 lakh despite your balance being overdrawn. This way, you may continue your transactions without any sort of disturbance when your account balance is not available.

Overdraft Facility Meaning and How it Works

An overdraft facility is simply a short-term loan that will help you solve cash flow problems. They are normally provided by banks for all kinds of checking or current accounts. The most important thing is that the overdraft is not a permanent loan; it is only a temporary solution.

In case you withdraw money from the overdraft facility, you will need to repay that once within a certain period. Also, interest is charged on the amount borrowed, and, depending on the bank, there can be additional charges.

How it Works:

• Overdraft Limit: Overdraft limit is the money allowed by the bank over the account balance that can be drawn.
• Access: This facility is accessible anytime; however, you are only allowed to access up to the established overdraft limit.
• Interest: Interest charges are charged on the overdrafted amount. Overdraft facility interest rates may differ between banks and tend to be more than personal loan interest rates.
• Repayment: Once you deposit money in your account, the overdraft balance is automatically reduced.

Knowing how overdraft works will give you peace of mind to handle unexpected expenses efficiently.

A Unique Financial Solution: Overdraft Facility Loan

While an overdraft facility can often be a superb short-term fix, when one needs a bit more money and longer repayment, a loan overdraft facility is the way forward. This form of loan comes with the freedom of an overdraft but ensures that the repayment amounts are structured according to a lending agreement.

This facility typically sets up a personal loan in the form of an overdraft. You can get access to funds and still enjoy the predictability of a personal loan repayment schedule.

Advantages of Overdraft Facility Loan

Some of the advantages of an overdraft facility can be summarized here to understand it better:

1. Liquidity Availability: You can borrow whenever you wish and repay as and when you feel like it.

2. Interest Paid on the borrowed Amount: Interest is paid only on the amount borrowed, not the entire facility.

3. Lower Rate of Interest: Cheaper compared to credit cards or short-term loans.

4. Easy Quick Access: There is no long procedure followed for approval.

5. Improved Cash Flow Management: Allows for the management of unexpected expenses or irregular income.

6. No fixed schedule of repayment: Pay at any time according to the situation.

Overdraft Facility Interest Rate

Among other factors, one of the most important things you should look out for in the overdraft facility is the overdraft facility interest rate. This is different from how traditional loans work, because most overdrafts are considered as revolving credit and your interest will depend on how much you use.

Overdraft standard rate can be between 15 and 30 per cent per annum. A personal loan overdraft can have a competitive interest rate, mostly between 6% and 12%, according to your credit score.

The overdraft facility interest can be higher as compared to other credit types, so it's important to use the facility responsibly.

Factors behind Overdraft Interest Rates

Overdraft interest rates are influenced by various factors. Let us understand them one by one.

• Bank Policies: Banks are different from each other with their structures on interest rates for overdraft facilities. Compare always before entering an overdraft facility.
• Creditworthiness: The overdraft may follow the interest rating that follows your credit score. High credit scores guarantee a low rate, while low-rated people will face a higher overdraft fee.
• Loan Type: A personal loan overdraft facility loan may be more competitively priced than a standard overdraft.

Key Advantages of Loan Overdraft Facility Loan 

• Immediate Access to Funds: The primary advantage of an overdraft facility is that you get instant access to funds when you need them the most. This is ideal for emergencies.
• Flexibility: You don’t need to reapply every time you need extra cash. Your overdraft limit is pre-approved, and you can use it as needed.
• Pay Interest Only on What You Use: Unlike traditional loans where interest is calculated on the full loan amount, with an overdraft, interest is only charged on the amount you use.
• Ease of Repayment: Most overdraft facilities are flexible in their repayment terms. You can easily repay the borrowed amount over time.

When to use an overdraft facility?

The best time to use an overdraft facility is when short-term liquidity problems are anticipated to be solved with an inflow of cash soon. Ideal examples that illustrate such scenarios for using such a facility include:

• Medical Emergencies: If you receive an unexpected medical bill that you do not have money for.
• Home Repairs: When you need emergency repairs, but the paycheck hasn't arrived yet.
• Seasonal Cash Flow Gaps: If you run a business and face temporary cash flow gaps, an overdraft can help keep things running smoothly.

The overdraft facility should not be used for long-term borrowing. The interest rates are so high that they can blow up quickly without timely repayments, which would lead to financial strain.

Conclusion

An overdraft facility is best suited if you are in urgent need of funds and require something flexible and speedy. It offers you the facility to draw money on demand, without the pain of applying for a loan. An overdraft facility, therefore, is an added security to finances from unforeseen expenses or seasonal gaps in cash flows.

Want to learn more or apply for an overdraft facility today? Contact us now to see how this solution can help you maintain financial flexibility.

Take control of your finances and secure the funds you need—right when you need them!