Overdraft Advantages And Disadvantages

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An overdraft is an extension of limit granted by the financial institution to an individual. This extension is granted on the basis of one’s account value, repayment behaviour or credit score. This can be considered as a short-term credit provided by the bank that needs to be paid within the stipulated time limit. This credit or overdraft attracts interest for the time of use which can be from a couple of days to a few weeks. The time limit is determined by the bank and it has full authority over the account and its use. Overdraft is a significantly useful service provided by the banks as it offers great aid to businesses in terms of cash flow. Businesses often have to wait for the payments from their clients and this results in delayed payments…show more content…
The minimum requirements for availing overdraft facility in a salary account are to have regular monthly salary credit by the company and the company being in the approval list of the bank. Banks offers overdraft up to 3 times of current salary of the customer. The facility is offered at minimal documentation and easy-repay feature. The customer is required to pay interest only on the utilised amount with the freedom to repay the amount anytime without preclosure charges. The minimum salary limit varies from Rs. 15,000 to Rs. 25,000 according to specific banks. This type of overdraft does not require any security or collateral. Some banks even offer overdraft amount of up to Rs. 4…show more content…
All the savings accounts opened under Prdhan Mantri Jan Dhan Yojna are eligible for an overdraft of Rs. 5,000 or 4 times monthly accent balance (Whichever is lower). The accounts must be satisfactorily operated for a period of 6 months to avail this facility and only one member of a family is eligible for it. The facility is granted to the earning member of the family, preferably women. The account being linked with Adhaar is another compulsory criterion for the
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