Overdraft Limit
Overdraft Facility is a financial instrument in which you can withdraw money from your savings or current account, even if your account balance is zero. This feature is provided by almost every financial institution, including banks and NBFCs. Overdraft facility is a type of short-term loan to be repaid in defined tenure, as required by the financial institutions. Lenders shall levy the interest rates that the borrower needs to repay, as per the bank’s terms and conditions. In the case of Overdraft, the type of interest rates offered by the lenders are both fixed and not floating.
Overdraft is awarded over a predetermined limit. This limit can be different for each borrower
The interest rate is charged on the amount of overdraft used. It is calculated on daily basis and it is billed to the account at month-end. If you default on paying the overdraft as per the set schedule, the interest amount will be added to the principal amount at month-end and then interest will be calculated on the new principal
Whenever you want to prepay a loan, usually a prepayment charge is levied. However, this is not the case with the overdraft facility. When you repay the amount borrowed through overdraft you do not pay prepayment charges. Also, you need not repay the Overdraft amount in EMIs. You can repay the borrowed amount cumulatively
Please note that your account may not automatically go into overdraft when you write a cheque. There are chances that your cheque is dishonored instead of going into overdraft and then a dishonor charge may be levied on your account
