Do you want rapid money or an immediate credit line for the reason that of an unexpected expense or to deal with any unforeseen monetary exigency? No want to be concerned if you are a salaried particular person and meet the eligibility criteria set by your bank if the bank provides the salary overdraft facility.
Salary overdraft is a type of revolving credit that you can avail on your salary account, wherein you can withdraw a unique quantity more than and above the balance in your salary account when you want it.
Banks provide salary overdraft accounts to choose current salary account holders based on their credit profile and their employers’ profiles. Banks problem a pre-determined overdraft limit to such salary account holders, from which they can withdraw on facing fund shortages.
“The instant pre-approved nature of this facility makes it an excellent credit facility to deal with unforeseen financial exigencies. These salary overdraft accounts can also be extremely helpful for avoiding unintentional cheque, EMI or SIP bounces due to insufficient funds in the salary account,” informs Sahil Arora, Senior Director, Paisabazaar.com.
Overdraw quantity: It may possibly be noted that each bank has its personal set of eligibility parameters to ascertain the extent of overdraft permitted. Depending on the bank and the account, in most situations, the credit line ranges from one to 3 occasions the net month-to-month salary of the account holder. However, in other situations, the overdraft may possibly be restricted to 80-90% of the net salary.
“Banks also have a cap on the amount that they allow as overdraft regardless of the net salary. Some banks may cap the overdraft at Rs 3-5 lakh, while others may allow only a much smaller amount of around Rs 1-1.5 lakh regardless of the borrower’s income. Some banks may allow an overdraft of only Rs10,000-25,000 depending on their policies,” says Adhil Shetty, CEO, BankBazaar.com.
For instance, you can get up to 3 occasions your salary as an overdraft loan from HDFC Bank and ICICI Bank, whilst Citibank Suvidha Salary Account provides an overdraft facility up to 5 occasions your net salary credit (up to Rs 5 lakh).
However, not all salary accounts will have an overdraft selection. Overdraft facility is extended at the bank’s discretion only to some choose salary account holders based on their eligibility and credit history. There are commonly processing charges when you open an overdraft account, as effectively as an annual renewal charge if you want to revolve the credit beyond one year.
Salary overdrafts can be as highly-priced as credit cards as the typical price of interest can be something from 1-3% per month or 12-30% per annum, based on the bank. “Coupled with the processing fee and penalties in case of missed payments, this can be a very expensive form of credit. This is especially significant as unlike credit cards, they do not come with the benefits of exclusive offers or reward points nor do they offer an interest-free period every month to repay whatever amount that has been utilized,” says Shetty.
It may possibly, nonetheless, be noted that interest is levied only on the drawn quantity, and not on the complete sanctioned limit, for the period till their repayment. These accounts also provide larger repayment flexibility as the repayments are not made by way of EMIs.
“The account holders can repay the drawn amount in parts or in entirety as per their repayment capacity and without incurring any prepayment charges. However, those availing salary overdraft facility are usually required to service the interest component of the drawn amount on a monthly basis,” says Arora.