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In an emergency, when money is needed and money cannot be arranged from anywhere, often people choose the option of a personal loan or arrange money by breaking an FD, etc. But there is also an option, which will arrange money for you and you will not have to pay any processing fee. We are talking about the Overdraft Facility. It is also called Overdraft Loan. Many people are not aware of it. You will get this facility in both government and private banks. It has many benefits. Know here-

What is an Overdraft Loan

Overdraft is a facility for which you have to get approval from the bank. If you get approval, then you can also withdraw more amount than the existing balance from your bank account. This facility is also called OD. OD is a type of loan. Most banks provide this facility on current accounts, salary accounts, and fixed deposits (FD). The amount taken through the overdraft facility has to be repaid within a certain period. However, interest also has to be paid on this loan. Interest is calculated daily.

What is the loan limit?

The bank decides how much amount you can get as a loan under the overdraft facility. Generally, if you take an overdraft facility on a salary account, then you can get double or triple the amount of salary as a loan. However, the facility of overdraft on a salary account can be given only by the bank in which your account is open.

There are many benefits of an overdraft loan

OD has not one but many benefits. Usually, when you take a personal loan, the interest is calculated on the entire amount for which approval is received. But this does not happen in overdraft loans. In this, interest does not have to be paid on the entire amount approved by the bank. You have to pay interest only on the amount you withdraw and use from your account. Understand this with an example- Suppose the limit of the amount available to you under the overdraft facility has been fixed by the bank at two lakhs. In such a situation, you can withdraw up to 2 lakh rupees from the account as per your need. But if you need only one lakh and your work is done, then your interest will be charged only on the 1 lakh rupees spent.

One advantage of an overdraft loan is that you are not charged any processing fee etc. In a personal loan, you also have to pay the processing fee. Apart from this, the interest is charged only for the time for which the amount is with you. This means that the sooner you repay the loan, the sooner you will get rid of the hassle of installments. You do not have to pay prepayment charges etc. for repaying the loan soon. Whereas personal loans cannot be closed before the specified time. If you do this, then you have to pay a prepayment charge for it.

How to avail of the OD facility

For an overdraft facility, you have to mortgage your FD, shares, house, salary, insurance policy, bonds, etc. If you are unable to repay the amount, then it is compensated by your mortgaged thing. But if the overdrawn amount is more than the thing mortgaged by you, then after compensating for the mortgaged thing, you will have to pay the remaining amount. However, if you do not have anything to mortgage, then you can also avail unsecured overdraft facility in the form of withdrawal from a credit card.