Most leading banks and financial institutions offer instant personal loan online and overdraft facilities to their customers with varying terms and conditions. Typically, customers are more aware of credit card facilities and personal loans than overdrafts. Overdrafts are mainly used by corporate clients or high net-worth (HNI) clients.
This article compares personal loans and overdraft accounts to help you decide the right option. To know more how personal loans can work for you, read this article here.
What is an overdraft account?overdraft facility does not have a grace period and the interest becomes applicable right from the day of the borrowing itself.
What is a personal loan?
Personal loans are unsecured loans that do not require you to pledge collateral as security. They can be obtained to meet personal expenses such as funding your child’s education, taking an international vacation, renovating your house, and so on. These loans require income verification and are based on your credit history. The better your credit score, the higher the loan amount you can avail. Application for personal loans is quite simple and generally gets approved within a few days.
How are personal loans and overdraft different?
When you avail an overdraft facility, you are not required to pay interest until you actually withdraw the amount from your account. Moreover, the interest is only charged on the actual amount you use and not on the entire limit, like in a credit card.
For example, you have an approved overdraft limit of Rs. 1 lakh, but you withdraw only Rs. 50,000. In such a case, the interest is levied on Rs.50,000 and not the entire sum of Rs.1 lakh.
Compared to personal loans, the interest rates applicable to overdraft can be higher. You can repay the borrowed amount over a fixed period of time. In case you want to repay the entire amount, you can exercise that option without incurring any pre-closure charges.
● Personal loans
When you apply for a personal loan, it gets approved instantly, provided you meet eligibility requirements and have the necessary documentation in place. The money can get credited in your bank account within a few hours. Once this money is disbursed, interest is levied immediately on the entire amount.
For example, if you avail a personal loan of Rs.1 lakh, whether you use the loan amount or not, you are required to pay interest on the entire sum until you repay the loan.
Which one is better?
An overdraft can be used to cope with short-term financial requirements. Even with an overdraft facility one may require more funds or time to repay. In this case, personal loans are an excellent option. You can convert your overdraft into a personal loan for additional funds and a longer repayment tenure.
If you are in need of financial assistance, you can avail an instant personal loan online from Bajaj Finserv. The loans carry lower personal loan interest rates and also involve minimal documentation. The loan disbursal process is very fast and efficient. You can get the money in your bank account within 24 hours of loan’s approval. Consider using the personal loan EMI calculator on the Bajaj Finserv website to determine your monthly payments and chalk out your finances.
Additionally, there are many other pre-approved offers on personal loans, business loans, home loans, and a host of other financial products. These offers can make the processing of loans simpler and also help you save on time. You may simply share a few basic details and check out your pre-approved offer.