How does the interest payment happen in an Overdraft Facility
An Overdraft Facility is a monetary extension issued by your bank when your Salary or Savings Account, hits zero. Any businessman or individual can apply for an OD when they want to fund any unplanned expenses. Read further to know about interest payments in an Overdraft Facility.
The requirement for immediate funds can arise anytime. When your Savings or Salary Account becomes nil, you can avail a credit extension in the form of an Overdraft or an OD. Let’s get to know what is the OD interest rate on the product.
What is an Overdraft Facility?
An Overdraft solution allows you to use or withdraw money from a Savings or Salary Account, up to an approved limit. It is a type of loan where the interest is payable only on the amount utilised. Both individuals and businessmen can apply for an OD, in case of a cash crunch or shortage of finance. For instance, ICICI Bank offers a FlexiCash solution to those holding a Salary Account with the Bank. In order to avail the OD facility, customers are evaluated on the basis of their banking relationship and other parameters, depending on which they are provided with a pre-approved OD limit on their salary account.
Features of Overdraft
- The credit limit for an OD varies from one bank to another
- It can be availed only when you already have a Salary or Savings Account with the bank
- The OD approval is decided after assessing factors like repayment history, account value, credit score, etc.
- It is a short-term credit option that is provided instantly and needs to be paid off within the stipulated time limit
- The tenure of the loan is generally <12> months. Banks offer an automated process of a renewal of an Overdraft; however, it can have an impact on your credit score
- The OD facility has an annual fee, processing fee, among others. Customers have the right to discontinue the service, whenever they want
- You have the flexibility to repay the outstanding credit at your convenience; however, the interest needs to be paid every month
- You do not need to provide any collateral, as the OD is an unsecured loan type.
The Interest Rate on an OD
The Overdraft Facility interest rate varies from bank to bank. At ICICI Bank, the interest rate is fixed and it is calculated daily and billed at the end of the month. You are liable to make interest payments only on the withdrawn amount. In case you haven’t used the loan amount, there is no interest charged.
Benefits of an Overdraft Facility
The following are some of the benefits of an Overdraft Facility:
- Convenience: It is simple and easy to avail the service from any bank, if you have an ongoing service with the bank. Unlike Personal Loans, you do not have to go through a long approval process
- Interest Payment: As soon as you withdraw money, the Overdraft interest meter starts ticking; however, the rate remains constant
- Instant funds: You get instant access to funds to serve short-term needs. It can be useful for businesses to meet their working capital expenditure.
If you are looking to fund any unplanned expenses, an Overdraft Facility is the best solution to meet your financial needs. It is easy to apply for an OD online at ICICI Bank through Internet Banking, Customer Care or Mobile Banking.
Terms and Conditions apply.
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