Financial institutions offer an overdraft facility, a financing agreement that allows individuals to withdraw or utilize funds up to a predetermined limit, even if the account balance is zero. It is a line of credit primarily required to cover short term cash requirements. Individuals can utilize the fund to meet the recurring working capital expenditure or personal emergencies.
Lending corporations provide overdraft facility based on the credit limit of account holders. The credit limit is indicative and depends on a series of background checks of respective applicants. Nonetheless, before opting for it, one must thoroughly learn about this overdraft facility to gain clarity related to its benefits.
Five smart things to know about overdraft facility on personal loan
Here are five crucial things to keep in mind before applying for a personal loan –
- Types of overdraft facility
Financiers extend two sub-types of overdraft facility, these are –
- Secured: Here, one receives access to this facility against collateral
- Unsecured: Similarly, any overdraft issued without collateral falls into this category
- Eligibility criteria and documentation
Lenders impose standard personal loan eligibility criteria to approve the facility. Commonly, lenders check three key parameters before approving the loan amount. They are-
- Age should be within 21 to 67 years
- Applicants must maintain a credit score of 750 or above
Nonetheless, anyone with a credit score less than 750 must look for ways to know how to get a personal loan with a poor credit score.
- The monthly income of applicants depends on the job location
This is another crucial aspect to consider before one applies for personal loans with overdraft facilities. The monthly income assures a borrower’s repayment capacity within a stipulated tenor.
Before individuals start looking for how to apply for a personal loan, one must arrange the following documents to continue with the application process.
- KYC documents
- Proof of income
- Income tax returns details
- Profit & loss account
- Balance sheet
- Documents related to business
- Sale tax
- Address proof of the company
- Bank account statement
- Memorandum & article of association
- Loan documents(applicable if opted for a loan previously)
- Latest loan account statement
- Loan sanction letter
- Repayment record
- Last 12 months bank statements
Lending institutions like Bajaj Finserv curate customized loan offers to help lenders fulfill urgent financial requirements. It also provides pre-approved offers on various products such as personal loans, business loans, credit cards, etc., to simplify and speed up the application process and avoid lengthy paperwork. Individuals can check their pre-approved offers providing their name and contact details.
- Interest charged
Suppose an individual borrows Rs. 3 lakh from his/her approved overdraft amount of Rs. 8 lakh. In this regard, the borrower will be charged an interest rate only on the utilized amount and not the entire principal amount.
Lenders will, however, convey the rate of interest applicable on an overdraft facility beforehand.
- Repayment tenor
Lending financial organizations approve overdraft facilities on best personal loans against flexible tenors. After utilizing the overdraft amount, borrowers need to repay EMIs only on the used amount within the predetermined tenor. Once the borrowers repay the overdraft amount successfully, the initial principal amount is restored.
In simple words, suppose a borrower withdraws Rs. 5 lakh from the sanctioned amount of Rs. 10 lakh. After he/she repays Rs. 5 lakh with interest, the credit balance will return to Rs. 10 lakh.
Additionally, borrowers must look for simple ways to manage debts to steer clear of defaults and save a sizeable amount in the future.
- Availability of joint account overdraft facility
Individuals can opt for this credit line along with a co-applicant. It will help them manage their debt better and apply for a higher loan quantum if needed. Moreover, in case the borrower has a burden of repaying multiple debts, opting for a personal loan for debt consolidation is recommended to manage finances efficiently, and access to an overdraft facility can come in handy.
In India, the personal loan market witnessed an accelerated growth of 11.9% in June 2021. A probable reason behind it can be the multiple ways a personal loan can be used to meet financial needs. Such impressive growth will further popularise the overdraft facility in this country.