Things to Know About a Personal Loan Overdraft Facility | Kotak Mahindra Bank - Personal Loan Stories

16 DECEMBER, 2021

Vijay wanted to start a catering business. He had a business plan in mind but not the funds required to execute the plan. He decided to take a loan. However, he was unsure of the amount he would need. His friend, a bank manager, advised him to take a personal loan overdraft facility. He explained to Vijay that a personal loan overdraft facility is the best option if he is not sure of the loan amount and cannot afford high interest costs.

What Is a Personal Loan Overdraft Facility?

It is an unsecured credit facility, which you can avail from any bank or financial institution. In this facility, you can borrow and use funds as per your need from a sanctioned amount. Further, you can also repay the amount as per your comfort and convenience.

For example, you plan to construct your office and do not know the amount of funds you would need. But because getting loan approval can take time, you apply for an instant personal loan of Rs 10 lakh and get its approval. Now, as and when you need funds to support the construction progress, you can withdraw and use them.

A personal loan overdraft facility can help you meet your needs without the need to pay additional interest on the entire loan amount. Here are a few things about the overdraft facility you must know about.

  • Multiple withdrawals

You can withdraw multiple times from the loan amount without paying any additional charge. The loan amount is sanctioned earlier and so can be used, as you need. However, there is a specific draw period. You can withdraw only in that period after which the repayment period starts.

  • No collateral

It is an unsecured credit facility. This means that you need not submit any collateral to avail this overdraft facility.

  • Flexibility

You can enjoy flexibility in repayments. You need not pay a fixed EMI. Instead, pay as it is comfortable to you throughout the entire loan tenure. You can make multiple repayments within the sanctioned tenure period.

  • Pay as you use

In a personal overdraft facility, you pay interest only for that amount you have borrowed and not the entire amount. In the above example, if you borrow Rs 2 lakh, you need to pay the interest only for the borrowed amount and not for Rs 10 lakh.

  • Quick disbursal

Lenders typically approve a personal loan overdraft facility within a few hours. The overdraft is approved with minimum documents and a simple application process.

  • Less debt

You are allowed to borrow only as much as you need. Therefore, there are fewer chances of debt accumulation.

A personal loan overdraft facility can help you manage your debt and expenses efficiently. However, you must know that it can have a higher interest rate than a personal loan interest rate. As it allows you to borrow in instalments, it could be more difficult to qualify than other secured loans. Moreover, once you have withdrawn a certain amount, you need to repay it before drawing more money.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.