About Salary Overdraft

Many banks offer salary overdraft accounts to select existing salary account holders based on their credit profile and the profiles of their employers. Do you need fast cash or an instant credit line because of an unexpected expense or to deal with any unforeseen financial exigency? No need to worry if you are a salaried person and meet the eligibility criteria set by your bank if the bank offers the salary overdraft facility. Salary overdraft is a form of revolving credit that you can avail on your salary account, wherein you can withdraw a particular amount over and above the balance in your salary account when you need it. Many banks offer salary overdraft accounts to select existing salary account holders based on their credit profile and their employers’ profiles. Banks issue a pre-determined overdraft limit to such salary account holders, from which they can withdraw on facing fund shortages. “The instant pre-approved nature of this facility makes it an excellent credit facility to deal with unforeseen financial exigencies. These salary overdraft accounts can also be extremely helpful for avoiding unintentional cheque, EMI or SIP bounces due to insufficient funds in the salary account. Overdraw amount: It may be noted that every bank has its own set of eligibility parameters to determine the extent of overdraft allowed. Depending on the bank and the account, in most cases, the credit line ranges from one to three times the net monthly salary of the account holder. It may, however, be noted that interest is levied only on the drawn amount, and not on the entire sanctioned limit, for the period till their repayment. These accounts also offer higher repayment flexibility as the repayments are not made through EMIs. The account holders can repay the drawn amount in parts or in entirety as per their repayment capacity and without incurring any prepayment charges. However, those availing salary overdraft facilities are usually required to service the interest component of the drawn amount on a monthly basis. Differences between Personal Loan and Overdraft Facility

• Availability: In order to avail a personal loan, then you will have to submit the necessary documents while applying for one. Once the bank disburses the amount to your bank account, you will have to repay the loan amount within a certain period of time. In case you wish to apply for another personal loan, you will have to follow the process from scratch. However, this is not the case when it comes to overdraft facility. Once you have applied for an overdraft facility, the amount available can be withdrawn at any time.
• Interest rate: Once the bank sanctions the personal loan, a rate of interest which is predetermined is applied on the loan amount. In case of an overdraft facility, if you do not withdraw any amount from your bank account, then no interest is charged. However, the rate of interest charged on an overdraft facility is higher as compared to personal loan.
• Modification in credit limit: When you avail a personal loan, you agree upon a certain loan amount with the lender. Once the loan amount has been sanctioned, it cannot be modified. However, if you are availing the overdraft facility, you can withdraw any amount of money based on your need.
• Tenure: The repayment tenure for a personal loan can go up to 5-7 years depending on the quantum of tenure and various other factors. However, the repayment tenure for an overdraft facility can be lower since it carries a higher rate of interest.
• Mode of repayment: On availing a personal loan, the mode of repayment is through EMI or the format stated by the lender. However, in case of overdraft facility, the repayment will be at the discretion of the applicant.
• Prepayment charges: It is also important to note that if you have availed a personal loan and wish to repay the loan before the repayment period begins, then the bank may levy a prepayment charge. However, there is no prepayment charge levied if you avail an overdraft facility. Both the products are suitable in their own manner and based on your expenses and financial dreams you are looking to fulfil, you can decide whether you must go for a personal loan or an overdraft facility.