Service Details
Overdraft loan is a secured form of credit with features of both a secured loan and the overdraft facility. The overdraft against property option lets you withdraw an amount from your approved credit line as an overdraft.
Due to the loan does not have any EMI obligation per month, customer can be easily be freed from this hassle and also if the loan is maintained properly, bank can usually fund for further around 130% of the property value whereas at the initial stage the only provide 50-60% of the property value. A businessman has two options while taking a loan for his business. Either to opt for long term funding like LAP (Loan against property) or to go for flexible funding like Cash Credit (CC) or Overdraft (OD). Long term funding generally carries a lower rate of interest while flexible funding gives opportunity to save interest by depositing extra funds in the account and thus paying interest only for amount needed.
What Is OD Account?
OD account stands for Overdraft account. It is a type of account in which you can withdraw amount even if there is no fund in your account. The bank sanctions a specific limit and your account can go in negative up to that limit. You have to pay interest only on the amount taken as loan. Since it is a current account, you can make as many transaction as you want. You have to pay interest on the amount which is due by the end of the day.
Points to be considered while taking a CC or OD account facility
- Rate of Interest – Rate of interest is higher than fixed loans like Loan against property (LAP) therefore if you generally don’t have extra money to park in cc or od account then you should opt for LAP.
- Processing fees – Processing fees charged by bank is normally .5% to .75% and could bargain on it.
- Minimum usage condition – Some bank levies charges if the cc or od account is not utilized upto a certain limit. For example you take an OD account of Rs. 10 lakhs and average use during the year is not 30% i.e Rs. 3 lakh then charges are levied.
- Account closing charges – Some banks also levies a percentage of loan amount as charges called foreclosure charges if you want to close the account. This generally ranges from 1% to 2%. If your bank levies 2% foreclosure charges then its not beneficial for you to shift to other bank even if other bank gives you a better interest rate.
- Interest Servicing – Some banks required the customers to deposit the interest of the month in the account through cash or cheque deposit within a few days of the next month.
The charges levied by bank is huge if you don’ t fulfill the conditions 3 and 5 above. So you should check the conditions and charges with your bank before opening a new account.
