Overdraft As the name suggests, overdraft. Banks provide overdraft facility to their customers. According to this facility, you can withdraw more money than the amount deposited in your bank. It has a different process and certain conditions of the bank have to be followed, only then you can take full advantage of the bank’s overdraft facility. Let us know in detail how one can get bank overdraft and who can get overdraft:
What is Bank Overdraft Meaning?
Overdraft is a facility provided by banks, according to which even if you have zero money in your account, you can withdraw money from your savings account or current account. This facility is given by almost every bank to its customer. Overdraft is a kind of short term loan, which the customer has to repay before a certain time frame. While taking an overdraft, the customer has to give some loan to the bank on the total amount taken.
Types of Bank Overdraft
- Authorized Authorized overdrafts :– Such overdrafts are fully planned i.e. settled. In an authorized overdraft, there is already an acceptance between the bank and the person, that that person can withdraw the overdraft money from the bank within a certain limit. For this, they have to pay some service fee and this fee can be paid daily, in a week or even in a month. In general, authorized overdrafts can be chosen, as everything is settled in this. But sometimes it can also be expensive, so it is necessary to be careful with it.
- Unauthorized Unauthorized overdrafts : There is no perfect arrangement in this type of overdraft and all these overdrafts are unplanned. In these overdrafts, if you withdraw the overdraft amount more than the agreement between the bank and you, then you are required to pay some charges on it later. The quantum of additional charges in this is very high, which makes this overdraft even more expensive.
How can it be taken ?
In an overdraft, if you fail to repay the loan amount on time, the lender has the right to auction your property. The information about the form in which overdraft can be taken is given below –
- House Of Against overdraft (Overdraft against House) :– If you want to take an overdraft against your home, it is possible. The amount of overdraft given on the house is 40- 50% of the amount of the existing house. Before giving the overdraft facility, the bank inspects your land and its value, as well as takes into account your credit history and payment ability and gives overdraft accordingly.
- Fixed deposit Of Against overdraft (Overdraft against FD/Super Saver) :– If we want to take overdraft against our fixed deposit, we can get overdraft and this is a convenient and beneficial facility than overdraft against home. It is also easier for the lender to grant an overdraft against a fixed deposit as the lender knows the borrower better. If an overdraft is taken against a fixed deposit, the loan rate is lower.
- Insurance policy Of Against overdraft :You can get overdraft depending on your insurance but in that case the amount of overdraft depends on the value of your insurance. If we keep our sum insured as support amount i.e. mortgage then we can easily take overdraft on our insurance policy.
- equity Of Against overdraft :– You can get overdraft against equity but this method is mostly adopted because equity depends on the market and its value in the market does not remain the same and keeps on changing. At the same time, banks also give less amount for overdraft on equity.
- monthly revenue Of Against overdraft :You can also take an overdraft on your salary and it is also called as loan for some time. You can get overdraft two to three times more on your salary, but this limit varies from bank to bank. To take advantage of this service, it is mandatory for you to open a salary account in that bank.
How to Apply for Overdraft?
- To take overdraft, first of all you should have a current account with the bank from which you want to take overdraft.
- After this the overdraft bank does not give it to anyone, rather you have to put some of your claim in the bank for the overdraft, such as property etc., so that you return the overdraft money to the bank with the required loan within the given time period. .
- Some relevant documents of the person applying for bank overdraft like IT return, proof of income etc. are also checked, as well as the documents submitted by you in the bank are also evaluated. And when all the documents are verified, only then the bank gives you the approval to give you the facility of overdraft.
How does an Overdraft Account Work?
- If you get an overdraft account approval from the bank, then you can get the overdraft amount from that bank. And whenever you need money, the amount is directly sent to your bank account as an overdraft.
- When you take an overdraft on your account from the bank, you keep on increasing the balance in your account and as soon as you deposit the amount in your account, it is automatically deducted from your account till the overdraft amount is completed. And till that time the bank takes loan from you.
- Whatever overdraft amount you have taken from your bank, interest is calculated on it every day because if the borrower deposits the amount in the bank, then the bank without informing him that amount will be reduced to reduce the overdraft amount taken by him. Hence, the amount of overdraft gets reduced. That is why the interest on the overdraft amount is calculated daily as the interest amount can change daily.
Use of overdraft
As we all know that money can be needed at any time and if money is not available at that time, then many problems have to be faced. But with the facility of overdraft by banks, we can take money from the bank. Even if we have zero rupees in our account, we can still take overdraft from the bank. The overdraft limit depends on our documents and our old relationship with the bank. The bank takes the loan till we pay the overdraft amount in full. In such a situation, overdraft is a very beneficial facility.
What Is Business Overdraft?
Business overdraft is like a lifeblood for traders. If the amount in the bank account of a merchant runs out, he can take the money for some time by using business overdraft. This facility is most beneficial for middle-class traders.
Merchants can use this service only if the balance in their bank account is less and they need more amount in the transaction. So in such a situation, the business overdraft facility by the bank proves to be artisan for the customers and you can repay it by the stipulated time. However, you are required to give some loan on this amount.
Overdraft Advantages and Benefits
- This process is easier and more flexible than the loan process. All you need to do is open an overdraft account with the bank. Also, you can pay the overdraft amount at any time and from that time the loan will stop on you.
- The interest that is charged on the money taken through the overdraft facility of the bank, that interest is calculated every day. If you have deposited some money in the account today, the overdraft amount will be reduced and you have to pay interest for the current amount and not for the entire amount.
Conclusion
Overdraft facility is like a lifesaving facility offered by banks. You can take money from the bank even if you have less or zero money. This facility is most beneficial for traders. Therefore, if you want to take this facility, then you can definitely take it.