What is an Overdraft Facility?
An overdraft facility is a financial arrangement between a bank and a customer, that allows the customer to withdraw more money than is currently available in their account. Almost every bank or financial institution in India provides an overdraft facility to its customers. The bank decides the loan amount and interest rate criteria. Let’s learn what an overdraft facility entails and how Terkar Capital simplifies the application process.
As the name suggests, the bank gives overdraft facilities to borrowers. It is to withdraw money more than the balance available in their bank account to overcome working capital requirements. OD is a short-term loan that must be repaid as determined by the bank. It can be available even if the account balance is zero. Such a facility is available in both secured and unsecured ways. The borrower can be individuals, self-employed professionals, etc.
OD Facility Example
To effectively manage your money, it is critical to understand the concept of an overdraft. So, let’s simplify using the example below:
PQR Private Ltd, a company with a current account at XYZ Ltd Bank, has a credit balance of Rs 750 Lacs. The company needs to make a payment of Rs 820 Lacs to one of its vendors. After analyzing the expenses, the company realizes that it needs additional cash to make the payment.
Hence, the company approaches its banker and applies for an overdraft of up to Rs 850 Lacs. The banker approves the application at a reasonable ROI. Thus, the company can now use the overdraft amount as and when required and will pay interest on the amount used above the credit balance.
Overdraft (OD) Terms
The terms of a loan may vary depending on the borrower’s profile, repayment capacity, relationship with the banker, financial history etc.
Features of OD Facility
- The overdraft facility helps in the effective working capital management of the company. It solves the immediate cash crunch. Also, It gives flexible repayment options to the current account holders.
- The credit limit depends upon the relationship of the borrower with his banker and also his credit score.
- Generally, the credit period is 12 months. Thus, the borrower has to renew the facility according to their requirements.
- The interest is charged only on the extra amount used. Other than the credit balance of the bank account which varies as per the amount of the Overdraft.
- The repayment of the OD is not done through EMIs. However, the borrower can pay as and when he is available with cash but before the end of the credit period.
Maximizing Your Overdraft Facility
The OD facilities can be a helpful way to manage your finances, but it’s important to use them wisely, as they can be expensive.
Here are some tips for maximizing your overdraft facility and avoiding unnecessary fees:
- Only use your overdraft facility for short-term expenses.
- Make sure you have a plan to repay your overdraft as soon as possible.
- Shop around for the best overdraft deal.
- Consider using a credit card instead of an overdraft facility.
- Be aware of the fees associated with overdrafts.
Learn more about the dropline overdraft facility here.
Overdraft facility at Terkar Capital
Terkar Capital is a financial institution that is known for providing overdraft facilities to its customers with ease. With Terkar Capital, borrowers can easily apply for overdraft facilities based on their needs and eligibility.
Particulars for OD Facility
# Min Amount (Rs. INR) - 25 Lacs
# Max Amount (Rs. INR) (No capping) - Rs. 100 cr +
# ROI - Repo Rate Linked
# Tenure - Revolving
An overdraft is a helpful financial tool in times of need. However, it is important to understand its meaning and potential risks. We believe this blog provides an in-depth explanation of overdraft’s meaning, its usage, and how it works. Overall, this article provides a helpful overview of the concept of overdraft meaning in the context of Indian banking.
FAQs
1. What are the eligibility criteria for an OD facility?
There are no set criteria for eligibility. It varies from lender to lender. But factors like the borrower’s age, credit score, earning/turnover, and relationship with a banker are considered majorly.
2. What is the procedure for obtaining an overdraft facility?
A borrower applies for an OD facility. The bank checks their credit score, relationship with the bank, earnings, and eligibility. If approved, the OD is sanctioned.
3. Who can avail of the OD facility?
Current and savings account holders can get an overdraft facility from their bank, depending on their relationship with their banker. Individuals, self-employed professionals, and enterprises can be borrowers.
4. Is there any requirement for collateral?
Collateral depends on the borrower’s availability and whether they have it. ROI is higher for unsecured loans.
5. Who offers the overdraft facility?
Almost all banks provide Overdraft facilities to their saving and current account holders. Nowadays, financial institutions also provide such a facility.
6. How long can the bank account be overdrawn?
The time duration of the overdraft depends upon the agreement between the banker and the borrower. Generally, the facility is provided for 12 months and has to be renewed at maturity.
These help the market ensure equitable distribution of wealth.
For this reason, the Government of India offers numerous subsidies, incentives and other facilities to MSMEs.
To avail of these benefits, a venture has to register itself into it.The initial process for MSME registration online is the same as mentioned above like clicking on the option “For New Entrepreneurs who are not Registered yet as MSME” and then when the next page of the government portal of registration of MSME is opened, the next step required is that the Aadhar Card number and name of the entrepreneur needs to be filled into the space provided.
When the entrepreneur fills his Aadhar Card number and his name, then the next step required is clicking the “Validate and Generate OTP” button.Once this button is clicked and OTP is received by the entrepreneur, he needs to enter the OTP.
There are two options below that box – “Yes” and “No”.
In a short while a message of thank you can be seen on the screen along with the registration number.Here it is to be noted that although an entrepreneur can register himself as MSME even if he does not have a PAN Card.
To execute their everyday operations properly, all small and medium businesses require sufficient operating capital.
When it comes to taking out a loan, businesses have two options: First is the long-term loans (small company loans, lines of credit, etc.
), and second is the short-term flexible loans (like cash credit and overdraft)Many businesspeople mistakenly believe that cash credit (CC) and overdraft (OD) are the same thing.
While these two short-term loan options look to be identical, they are two entirely different financial solutions that cater to different needs.
Let’s take a closer look at the distinctions between CC and OD in this blog post, so you can figure out which is best for your business.What is cash credit?Cash credit is a sort of short-term loan offered to businesses to help them manage their working capital needs.
The money is credited to a different account that is neither current nor savings.Key points:You are only allowed to utilize the funds for business purposes.To receive the money from the cash credit, you’ll need to open a new bank account.The number of transactions and checkbooks issued for the cash credit account is unlimited.Borrowers must present the profit and loss statement, balance sheet, GST filing, and other documentation once per quarter and annually.To obtain cash credit loans, most lenders demand the borrower to provide collateral.The loan can be repaid every day or weekly, depending on the lender’s terms and conditions.What is an overdraft?Overdraft is a facility given by banks to a limited number of consumers.
Metal bars made from robust materials like steel are common place in a number of industrial applications.
In order to best produce these metal bars according to their intended size, smoothness, and cylindrical uniformity, bar grinding services are used for grinding and straightening purposes.
Here are some of the most common applications for metal bar, and how bar grinding services help produce the best end-prodcut.
Rebar Likely one of the first applications to come to mind for metal bar, rebar is utilized in countless support systems for things like concrete foundations, building structures, bridges, and more.
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In order to facilitate the best possible bond between the concrete and the rebar, the surface of the bar is often etched out with various patterns that provide crevasses for the concrete to imbed itself, and further bond with the rebar.
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