Overdraft facility is issued to the customers facing financial emergency. It helps in raising short-term funds. If overdraft facility is used wisely, then your short-term money requirements can be handled efficiently.
The overdraft facility is provided to the individuals on the basis of property, insurance policies or even securities. You need to pay interest during the period the loan amount is taken. This overdraft facility is imparted by the banks to their customers.
Let us understand the concept of overdraft facility and its wise usage in detail.
Overdraft – Lifeline for individuals to meet short-term needs
Overdraft refers to a credit facility provided to individuals on the basis of the assets. For instance, if you are giving your flat as mortgage to the bank, the bank issues you overdraft facility after verification and approval process.
Suppose, the cost of your flat is Rs.50 lakhs. Then, bank will check your capacity of repaying the loan and the property details. On the basis of banks’ regulations, overdraft facility of Rs. 25 lakhs may be sanctioned to you.
The overdraft facility is provided to the individuals on the basis of property, insurance policies You need to apply for it and mortgage your assets. You must pay the interest for the period you are availing the loan amount. However, you can withdraw overdraft facility as and when required.
It is not compulsory to give only tangible property to the bank. You may even provide shares, bonds, securities, deposits, and insurance policies for the purpose. This overdraft facility is cheaper and convenient as compared to that of credit cards.
Overdraft facility – nice when used wisely
As explained earlier, overdraft facility works like the loan process. You need to submit collateral security such as property, shares, bonds, securities, fixed deposits, insurance policies. But there are certain tips for submitting this collateral.
If you need large amount of money, then you can provide property such as your flat. The bank will undergo property assessment and consume time for it.
If you need money quickly, then you must provide fixed deposits as collateral security. It is observed that banks are much lenient and quicker when the loan is to be issued on the basis of fixed deposits.
Most of the individuals have taken life insurance policies. But these policies will not get you returns. If you want to use them rationally, then you must use them for availing overdraft facility.
Some of the banks also issue overdraft facility to individuals on the basis of their salary structure.
Thus, you must choose your collateral on the basis of your credit limit and requirement. Banks also charge nominal charges for the same. It is one-time expense, particularly at the time of mortgaging property. The timeline for overdraft facility is of one year and the review takes place on annual basis.
Conclusively, overdraft facility is a boon to the individuals in need of funds. But you must first analyze your requirements and the collateral that you are possessing. Take a decision accordingly after weighing your collateral securities. You need to be disciplined in terms of repayment so that your asset is saved.
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