5 Reasons Why You Must Choose Overdraft Facility Against Personal Loan
Emergencies can arise at any time, attracting need of some extra cash! How would you manage such situations? most of the cases for a smaller amount we can get it from either friends or relatives. But what happens when it is not arranged with relatives? in this scenario, you may end up with no choice other than applying for either personal loan or overdraft facility from the bank.
A personal loan is an unsecured loan. It is not secured against any assets such as car loan, home loan etc. If you opt for overdraft facility it is a facility provided by the bank with which you can borrow money up to a certain amount from the bank. In this post, we will see why overdraft facility is good against the personal loan and why.
- Overdraft is facility provided by the bank on your account. In overdraft, you can borrow extra money from bank account.
- The interest rate levied on the borrowed amount is fixed and not floating.
- Overdraft facility is a pre-approved facility provided to selected customers. Some bank requires customer application to avail this facility.
- When you opt for overdraft facility your account is flagged as an overdraft account. As soon as you withdraw extra money overdraft facility is activated automatically.
- The time required to borrow money from overdraft account is Nil.
- The personal loan is a loan given by the bank without any collateral. It is known ad unsecured loan.
- Income proof is mandatory to avail this loan. A personal loan is given by considering your income eligibility, credit history, and repayment capacity.
- A personal loan can be used for any purpose including medical expense, marriage expense, home improvement, purchasing household items or to pay your credit card debt etc.
- This loan is given to the salaried individual and self-employed.
- Personal loan tenure is maximum 5 years.
How Overdraft Facility Work?Overdraft loan facility is like an on-demand loan. In this facility, you are making an agreement with a bank to offer you extra money up to a specific limit. This limit is decided by the bank. Once this facility is provided you can withdraw extra money (over and above your bank balance). Once you withdraw extra money, it will show extra money as outstanding demand. When you deposit money, this demand amount decreases. The interest is applicable from the time you borrow the amount.
To avail this benefit certain bank asks for collateral such as fixed deposit, insurance policy, share certificate or can provide facility based on your relationship with the bank.
Top 5 Reasons For Opting Overdraft Over Personal Loan
#1 Its Quick And SimpleIn a personal loan, you have to do a lot of paperwork. Every time you need money you have to do similar paperwork. Another thing is once your application is approved, it will take time to get an actual amount.
In overdraft facility, once your facility is approved you can withdraw money anytime. You need not set up overdraft account every time you need money. It is a quick and easy way to get money.
#2 Totally FlexiblePersonal does not provide much room of flexibility. You need to pay money via equated monthly instalment. Tenure of loan is fixed, and prepayment charges are applicable. This could be a problem in case you have variable income.
Overdraft facility is flexible in nature. You can avail overdraft anytime. There is no fixed repayment schedule for outstanding. You can make repayment as per your convenience, and you'll be charged interest based on how much money is outstanding.
#3 Interest CostIn a personal loan, the interest is applicable as soon as you opt for loan and money get transferred. You need to pay interest, Irrespective of usage. You also need to pay prepayment fee along with the principal and interest amount due.
In overdraft account, you need not to pay interest on money you have not withdrawn from your overdraft limit. No additional fee or prepayment charge applicable on overdraft.
#4 Secures Your CIBIL ScoreAre you one of those who take personal loan frequently? then there are chances that your CIBIL score gets affected badly. For this, you have to be careful in making repayment of the loan. The adverse effect to CIBIL score may cause a problem in getting a loan or credit card in the future.
For overdraft facility, you will have a single loan and you will be making regular repayment. This will help in protecting your CIBIL score.
#5 Management of LoanIf you are taking multiple personal loans, you must remember the repayment schedule of every loan. Apart from that, it is very difficult to manage multiple loans. In overdraft, it will be single account and it will be very easy to manage it.
Based on the above top 5 reasons it is but obvious that Overdraft account is a viable option compared to personal loan.