Financial emergencies can come without warning and leave us feeling helpless in finding a solution. An overdraft is one way to get access to cash when you need it, but before taking this route you should be aware of how interest rates, eligibility, and lenders all factor into the equation. In this article, we’ll cover everything you need to know about overdrafts – from interest rates to the best lenders in India. Let’s get started!
| ICICI Bank | 8.76% p.a. to 15.6% p.a. | Rs.4 crore | 12 months to 36 months* |
| HDFC Bank | Contact the bank for details | Valuedraw – Rs.25 lakh Elitedraw Depends on collateral | Contact the bank for details |
| IDBI Bank | Contact the bank for details | Varies based on the value of the collateral. | Contact the bank for details |
| Bajaj Finserv | From 18% p.a. onwards | Rs.30 lakh | 60 months |
| Kotak Mahindra Bank | Contact the company for details | Rs.25 crore | 36 months |
| Oriental Bank of Commerce | 9.25% p.a. onwards | Varies based on the value of the collateral. |
Introduction to Overdraft
An overdraft is a facility provided by banks that allows customers to withdraw money even if they don’t have sufficient funds in their account. In other words, it is a short-term loan from the bank.
The interest rate on an overdraft is generally higher than the interest rate on a regular loan. The reason for this is because an overdraft is considered to be a high-risk loan by banks.
To be eligible for an overdraft, you will need to have a good credit history and a steady income. You will also need to provide security for the loan in the form of collateral.
The best way to find the lowest interest rate on an overdraft is to compare rates from different lenders. Make sure to also compare the fees and charges associated with each lender before choosing one.
What is an Overdraft?
An overdraft is a type of loan that allows account holders to spend more money than they have in their account. This can be useful in an emergency, but it’s important to understand the costs associated with an overdraft before using one.
Overdrafts typically come with high interest rates and fees, so it’s important to only use them as a last resort. If you’re considering an overdraft, compare the costs from different lenders before borrowing.
The best way to avoid paying interest and fees on an overdraft is to keep track of your account balance and avoid spending more money than you have. You can also sign up for text or email alerts from your bank so you’ll know if you’re close to your limit.
Benefits and Drawbacks of an Overdraft
An overdraft is a type of loan that allows you to borrow money from your bank when you don’t have enough funds in your account to cover a transaction. Overdrafts can be useful in emergency situations, but they come with some risks and costs that you should be aware of before using one.
Benefits:
1. An overdraft can help you cover unexpected expenses in a pinch.
2. You may be able to avoid costly fees for bounced checks or declined transactions.
3. An overdraft can help you build your credit history if you repay it in full and on time.
Drawbacks:
1. Overdrafts typically come with high interest rates, so you could end up paying a lot more than you borrowed if you don’t repay the loan quickly.
2. Some banks may charge hefty fees for using an overdraft, including annual or monthly fees, per-transaction fees, and even Balance Transfer Fees if you transfer the balance to another account.
3. You could damage your credit score if you don’t repay an overdraft in full and on time, which could make it harder to get approved for loans or credit cards in the future.
Eligibility Criteria for an Overdraft
An overdraft is a form of credit that allows you to withdraw more money from your account than you have deposited. Overdrafts are typically used in cases of emergency or when you need extra funds to cover unexpected expenses.
In order to be eligible for an overdraft, you must first have an account with a bank or financial institution that offers this service. You will also need to meet the minimum age requirement and have a regular source of income. Additionally, you may be required to provide collateral, such as a savings account or property deed.
Once you have met the eligibility criteria, you can apply for an overdraft by filling out an application form. The lender will then determine whether or not you are approved for the credit line. If approved, they will provide you with a limit on how much money you can borrow. This limit is usually based on your monthly income and expenses.
If you decide to use your overdraft, it is important to remember that interest will accrue on the outstanding balance. Additionally, there may be fees associated with using this form of credit. It is important to read the terms and conditions of your agreement carefully before taking out an overdraft so that you are fully aware of all the costs involved.
Interest Rates on Overdrafts in India
Overdraft facilities are offered by banks in India at a certain rate of interest. The interest rate on an overdraft facility is generally higher than the interest rate on other types of bank loans. However, the interest rate charged on an overdraft facility varies from one bank to another.
The following table provides the latest information on interest rates charged by different banks on their overdraft facilities:
The above table shows that State Bank of India offers the lowest interest rate on its overdraft facility among all the banks mentioned in the table. However, SBI also requires a minimum balance of Rs. 25,000 to be maintained in the account in order to avail of this facility.
Best Banks Providing Overdrafts in India
Overdraft is a type of loan that allows account holders to withdraw more money than they have in their account. This service is usually provided by banks and other financial institutions.
In India, there are many banks that provide overdraft facilities to account holders. Some of the best ones are HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank.
These banks offer different interest rates and terms on their overdraft facilities. HDFC Bank provides an overdraft facility at an interest rate of 10.5% per annum. The maximum amount that can be withdrawn under this facility is Rs. 500 lakhs.
ICICI Bank provides an overdraft facility at an interest rate of 11% per annul. The maximum amount that can be withdrawn under this facility is Rs. 400 lakhs.
Axis Bank provides an overdraft facility at an interest rate of 12% per annul. The maximum amount that can be withdrawn under this facility is Rs. 300 lakhs.
Kotak Mahindra Bank provides an overdraft facility at an interest rate of 13% per annum for amounts up to Rs. 2500Lakh and 15% per annum for amounts above Rs. 25cr . The maximum amount that can be withdrawn under this facility is Rs 25 crore .
How to Apply for an Overdraft
When you approach a bank or financial institution for an overdraft facility, they will first assess your creditworthiness and repayment capacity. Based on this, they will offer you an interest rate and overdraft limit.
To apply for an overdraft, you will need to fill out an application form and submit it along with supporting documents such as your ID proof, address proof, income proof and bank statements.
The lender will then verify your details and sanction the overdraft limit. Once the account is activated, you can withdraw funds up to the sanctioned limit.
Tips for Managing Your Overdraft Effectively
Overdrafts can be a great way to manage your finances, but they can also be a burden if not managed correctly. Here are a few tips to help you manage your overdraft effectively:
1. Know your limits: Be sure to know how much you’re allowed to overdraw from your account. This will help you avoid any unwanted fees.
2. Keep track of your balance: It’s important to keep track of your account balance so you know when you’re getting close to your limit. This way, you can make adjustments to your spending accordingly.
3. Make payments on time: Be sure to make any necessary payments on time in order to avoid accruing interest or late fees.
4. Use it wisely: Overdrafts can be helpful in managing your finances, but they should only be used when absolutely necessary. If used too frequently, they can become a financial burden.
Conclusion
Overdraft is a great way to get access to additional funds when you need them. With the right information and research, Indian residents can find the best lender for their overdraft needs. We hope this article has provided you with all of the information that you need in order to make an informed decision about whether or not overdraft is right for your financial situation. Good luck on your search for financial freedom!