Want urgent cash? Try overdraft facility!

When people want cash on an urgent basis for a short period of time, they usually think of taking a personal loan or a gold loan to tide over the temporary cash crunch. But there is another alternative which is quite popular among business persons, but it has not quite caught the attention of the general public. This is the overdraft facility extended by banksand NBFCs to their accountholders.

The overdraft facility extended by the bank (or the NBFC) is a credit provided to the accountholder who can withdraw any amount, subject to the maximum credit limit specified by the bank. A person availing this facility can withdraw any amount from the bank account up to the limit prescribed by the bank and the bank will charge interest only on the withdrawn amount. So, if an accountholder having overdraft facility of Rs 2 lakh withdraws an amount of Rs 50,000 and repays it after a month, the bank will charge interest only on Rs 50,000 for one month. So, if the rate of interest on the overdraft facility is 1.25% per month, the amount of interest on Rs 50,000 for one month will be Rs 625.

The overdraft facility can be availed multiple times, subject to the maximum amount specified by the bank. So, in the above example, the accountholder can avail the overdraft facility any number of times, provided the total outstanding amount of all the withdrawals made does not exceed Rs 2 lakh at any given point of time.

The advantages of availing overdraft facility are many. Since the overdraft facility is pre-approved and offers instant credit, the customer does not have to wait for the approval and disbursal of the loan amount. Also, the loan can be prepaid any time and the bank does not levy any prepayment charge on the prepaid amount. However, it must be noted that some of the banks and NBFCs levy maintenance charges for extending the overdraft facility.