Overdraft: How banks decide your eligibility for OD facility?

Overdraft (OD) facility is one of the convenient credit services to acquire funds instantly. Availing this service is way easier than applying for any type of loan. An overdraft facility becomes more useful during an emergency.

Many banks offer overdraft facilities on existing savings accounts or current accounts. Also, you can get an OD approval on an existing loan or credit line. However, the banks may have their own policies on allowing OD facilities.

What is an overdraft?

An overdraft facility is a credit service wherein one can withdraw more funds than the balance in their bank account. The facility is available at both public and private sector banks. Moreover, this feature is available for personal loans as well. Borrowers can repay the amount as per their convenience. However, the catch is the interest will be charged only on the funds actually used while the actual permitted limit could be much higher. A late fee and interest will be charged after the stipulated free period.

Advantages of overdraft facility  

•       Instant access to credit funds during emergencies as one doesn't need to wait for an approval, which is the case with loans.

•       Interest rate is calculated on the actual money utilised and not the total money sanctioned unlike loan facilities.

•       If you have a good CIBIL score you can get approval for a higher OD limit.

Eligibility criteria for overdraft facility

1.      The borrower should be an Indian citizen.

2.      One should be aged between 21 and 65 years to use the overdraft facility.

3.      Borrowers must have an account in the bank they want to avail the OD facility.

4.      The lender has the right to decide the income criteria and it varies from one bank to the other.

5.      Banks may require a good CIBIL score to ensure your creditworthiness.

6.      Some businesses are also entitled to using these facilities. These include Proprietorship firms, public sector companies, public or private limited entities, and partnership firms.

However, the aforementioned criteria is applicable for the overdraft feature with relation to a bank account. In case of requesting for a personal loan overdraft, even if all these parameters are met, the final decision lies with the lender.