Are you aware that in times of emergency, you have the option to obtain an overdraft on your personal loan? This feature can provide assistance during financial emergencies without compromising your long-term investments. If you are unfamiliar with this feature, there is no need to worry. This article will provide you with a comprehensive understanding of the personal loan overdraft facility.
Let’s commence, shall we?
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What does the personal loan overdraft facility entail?
Personal overdrafts are agreements between you and your lender. This is where your lender permits you to withdraw a specific amount based on your relationship with them. It is a form of credit provided to meet unforeseen or urgent short-term needs.
Many people often confuse a personal loan with an overdraft.
Distinguishing between a personal loan and a personal loan overdraft facility
Allow us to clarify the distinction:
An overdraft loan or personal overdraft loan is a service offered by banks that allows customers to withdraw some amount of money, even if their bank account does not have sufficient funds. It is essentially a line of credit extended to customers based on their business, transaction frequency, average monthly and yearly account balances. It is important to note that banks do charge interest on the overdraft amount, although it is not as high as the interest on a personal loan.
In personal loans, borrowers are obligated to repay the loan amount in accordance with the prescribed EMI format or as and when directed by the bank. Conversely, the amount that is withdrawn under the overdraft facility can also be repaid at the borrower’s discretion. There are no additional charges for prepayment of the overdraft amount. However, if a customer chooses to repay the personal loan amount before the stipulated repayment cycle, a fee is imposed.
Now that you understand the difference between a personal loan and an overdraft facility, let’s examine the advantages and disadvantages of this facility.
Pros and cons of a personal loan overdraft facility
One of the major benefits of an overdraft facility is that interest is only charged on the amount withdrawn, as opposed to a personal loan where interest is charged from the day the amount is disbursed. Borrowers are required to undergo background checks, ensure they meet the minimum salary requirements for personal loans, and verify their documents when applying for personal loans.
However, when it comes to an overdraft, documentation is only required once. The borrower can overdraw money multiple times from the same account, up to the sanctioned overdrawing limit. Even if your bank account has insufficient funds to cover up for the whole withdrawn amount, you can still overdraw up to a certain limit.
Despite the fact that overdrafts are faster than personal loans, borrowers should exercise caution when applying for them. In the case of a pre-approved overdraft account at a bank, individuals must keep track of their borrowing and make regular repayments. Experts warn that unchecked borrowing can lead to a debt trap as interest accumulates.
For emergency needs, you can always use Airtel personal loans or Airtel Flexi Credit. Instant disbursal and the flexibility to choose your EMI amount, loan tenure, and loan amount can help you plan your finances better.