Do you find yourself in a situation where your account balance is zero? Don’t worry—you can still access funds from your account. Let’s explore this convenient feature that banks offer to their customers: the overdraft facility.
Banks allow you to withdraw funds as needed, even if your account balance is zero. This is known as an overdraft, a testament to banks’ trust in their customers. They provide us with funds in advance, which we are expected to repay with interest later.
Customers who avail of the overdraft facility can borrow money from the bank. This means they can get an advance of up to three times their salary whenever needed, depending on their financial status. The conditions for this facility also vary from bank to bank.
An overdraft is a short-term loan useful in emergencies. Public sector banks, such as the State Bank of India and Union Bank, are owned and operated by the government, while private banks like ICICI and HDFC, which are owned by individuals or corporations, offer overdraft facilities to their customers.
Repaying an overdraft is not a rigid process like paying EMIs. You can repay it when available, providing a flexible and convenient repayment option.
Eligibility: Only employees with a salary bank account are eligible for the overdraft facility. Banks also check customers’ credit scores, which are a numerical representation of their creditworthiness based on their credit history and other financial behavior, before granting an advance.
Not all monthly salary earners are eligible for the overdraft facility. Those who want to use it must follow bank regulations.
Late payment: If you delay paying an overdraft for a long time, it will affect your credit score. Interest is charged daily on money borrowed through overdraft and is added to the account at the end of the month.
If the overdraft amount is not paid on time, the interest will be added to the original amount at the end of the month. Interest is also calculated on the total principal. Additional fees on overdraft and prepayment charges are not applicable.