Here’s everything you need to know about the overdraft facility

New Delhi: Often customers need to take out a loan from the bank for different purposes. One investment tool that can help people in this area is to have a Fixed deposit. Taking out a loan or overdraft (OD) against an FD is one of the easiest ways because the FD is used as collateral under the OD facility, while the invested money remains intact.

The amount deposited in the FD could even be used to secure the required loan amount. For this, the user can simply request an overdraft on his FDs by using the online bank account service or by visiting the bank office.

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Overdraft FD

Generally, overdrafts of up to 90% of the current value of the FD are allowed by banks. The interest on the overdraft facility is 1-2% higher than the rate of the underlying FD. The advantage of this facility is that the borrower has to pay interest on the overdraft amount he uses and the interest is calculated daily.

Therefore, a recurring overdraft on FD can be used to cover short-term liquidity demand.

Another advantage of this facility is that the borrower does not have to worry about monthly EMI payments. They can deposit the outstanding balance as per their convenience.

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Reasons why the overdraft facility can be a good choice

No credit score requirement

Many people are unable to avail a loan due to poor CIBIL scores or low income. In an FD overdraft case, they do not need to meet any of these requirements. All the person needs is to have an FD in the bank to qualify for the loan.

No documentation, fast disbursement

No paperwork is involved in using an overdraft facility. The FD account holder will no longer need to provide any other documents because the bank already has all your KYC information. The borrower can receive the funds in his account within 24 hours.

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Processing fees and other fees

FD account holders who wish to obtain a loan on their account do not have to pay any processing fees. They also won’t have to pay any additional fees such as foreclosure or prepayment charges.

Lower interest rates

FD account holders get loan at reduced interest rate. Because this is a secured loan, your FD will serve as collateral or collateral against the loan amount you will receive.

Higher loan amount

Seeking a loan on the FD can earn a loan amount of 80% to 90% of the overall value of the FD. The higher the FD amount, the higher the loan amount.

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