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Last Updated : Oct 08, 2018 07:48 AM IST | Source:

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Personal overdraft or salary overdraft is a credit provided to individual where one can withdraw any amount up to the sanctioned credit limit.

Satyam Kumar

In the present day and age, loans have become an indispensable need for almost every individual. Some avail loans to buy a new property, some to purchase household accessories, while some use the extra credit to fund their dream vacation. This need for loans becomes all the more pronounced for working professionals, who have their fixed monthly liabilities alongside other day-to-day expenses. There are also situations where borrower is quite unsure of exact expense. Thus, he is not sure of the of the required loan amount and the tenure which would be suitable for him.

What are personal overdrafts?

Personal overdraft or salary overdraft is a credit provided to individual where one can withdraw any amount up to the sanctioned credit limit. This product is generally offered to individuals who have shown greater financial discipline. In personal overdraft, you pay interest only on the principal amount that you have utilized. For example, if you have a credit limit of ₹ 1 Lakh and you utilised only Rs 50,000 and repaid the amount after 10 days. You end up paying only ₹250 as interest at 1.5% interest rate per month. The interest amount may vary subject to interest rate and when you repay the amount. Another important feature of personal OD is that it offers credit limit that can be utilized multiple time till the credit limit is reached. However, it must be noted that there are many financial institutions that offer dropline OD where the customer’s limit automatically reduces at the end of every month, leading to NIL credit limit at the end of pre-set loan tenure. Also a few financial institutions charge annual or monthly maintenance fee for personal overdrafts.


Easy servicing of Loan

Working professionals often find themselves in situations where they need a specific sum of money for a limited period of time (a few days or weeks). Credit cards, despite extending a similar line of credit, levy more than 40 percent per annum on cash withdrawals (besides additional charges), making them very expensive. Under such circumstances, professionals have to look towards personal loans to meet their needs. However, taking multiple loans for multiple needs implies hassle of interacting with many institutions and managing multiple repayments. A personal overdraft allows salaried professionals to have just one credit limit, one single monthly interest payment and thus a lot less effort and confusion.

How do personal overdrafts make a difference?

Personal overdraft is disbursed directly into the bank account of the customer. The customer can thus choose from a mix and match of bank debit, ATM withdrawal, PoS-based payment, and cheque-based transaction of the disbursed amount. Personal overdrafts, moreover, are preapproved and can be used instantly in case of an emergency without waiting for approval from the loan officer.

Other advantages of using personal overdraft are that it does not invite prepayment charges and a customer always has an option to service the minimal interest amount by the due date. The line of credit is automatically replenished upon the payment of outstanding amount by the individual. Personal overdraft is a customised loan product. Having a pre-approved OD limit as per requirement and repaying as per the convenience- all are need based and borrower driven.

No wonder then that many working professionals are availing this loan instrument very readily and are keeping it as a backup to seamlessly manage finances at their time of need. But do ensure that you repay all your credits availed on time and maintain your credit score.

The writer is Co-founder and CEO of LoanTap

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First Published on May 4, 2018 09:29 am
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