What is an overdraft line of credit?
An overdraft is a type of short-term loan. It's most commonly utilised by firms to bridge the gap between short-term cash flow problems and long-term cash flow problems. Salaried people can use it instead of splitting up their FDs if they just require money for a short period of time.
What is the process like, and how does it vary from a personal loan?
The Overdraft Against FD facility is available 24 hours a day, 7 days a week and covers up to 85 percent of the value of the FDs stored with Bank. The interest rate is two percent more than the bank's FD interest rate.
The interest rate on a personal loan, on the other hand, would be greater than the rate on an overdraft facility. And, because there is no opportunity to withdraw or redeem the FD partially, One would miss out on the total interest he/she could have received if he/she broke her FD.
Other significant variations exist between a personal loan and an OD facility.
For persons who don't have a credit history, OD against Fixed Deposit is an excellent option to acquire money. Borrowers without a credit history or credit score may find it difficult to obtain a personal loan.
Compared to a personal loan, the application and paperwork process is substantially easier.
ODs do not have an EMI system. Borrowers can repay whenever they choose as long as the FD is active.
As previously stated, interest is only levied on the quantity of OD used and the length of time it was used.
OD facilities, unlike personal loans, do not have prepayment penalties
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