Personal Loans and Overdrafts (OD) serve as valuable tools to address your various financial needs. Choosing between
them can be crucial when financial needs arise unexpectedly or for a significant purchase. Each option offers money
access, yet they differ in qualification, process, rates, and how you repay. Understanding OD vs Personal Loan will
pave the way for making an informed decision as per your financial needs.
- Loan amount
When you opt for a Personal Loan, you get a pre-agreed sum in full, which is
ideal for substantial expenses. Overdrafts differ, allowing you to use up to a certain limit at your discretion,
perfect for fluctuating cash needs. This flexibility means you can manage your finances as situations arise,
without committing to a large loan.
- Repayment
With a Personal Loan, you'll pay back the amount in fixed monthly instalments
spread across a defined period that suits your financial planning. Overdrafts, in comparison, have no fixed
repayment schedule, offering the freedom to repay the used funds at your own pace, as long as you stay within
the credit limit.
- Interest rate
Personal Loans lock in your interest rate, ensuring stability in your
repayment amount throughout the loan term. Overdrafts, conversely, charge interest only on the amount you
withdraw, not your entire credit line, making it a cost-effective option for short-term borrowing without the
long-term interest commitment.
- Repayment method
The repayment of a Personal Loan is through scheduled monthly payments,
making it easier to budget long-term. An Overdraft is less rigid, allowing you to deposit funds back at your
convenience and providing a repay-on-your-terms approach, as long as the Overdraft remains within the approved
limits.
- Fund disbursal
For a Personal Loan, the sanctioned amount is transferred to your account in
one go, giving you the full sum immediately for your use. Overdrafts, however, offer a credit limit from which
you can withdraw as needed, providing a ready source of funds without an upfront lump sum disbursement.
- Tax benefits
Personal Loans can come with tax deductions under certain conditions, such as
loans for home improvements or educational expenses, potentially easing your tax burden. Overdrafts usually do
not offer such tax advantages, as they are considered as credit lines rather than tax-deductible loans.
Eligibility and approval
Securing a Personal Loan hinges on having a robust credit score,
dependable income, and a debt-to-income ratio that's within acceptable bounds. The journey from application to
approval varies, taking anywhere from a mere few hours to several days, subject to the lender's scrutiny and
processes.
On the flip side, an Overdraft also necessitates a healthy credit score and reliable income but is typically quicker
to obtain. The expedited approval process for Overdrafts means you might gain access to additional funds almost
instantaneously, making it a swift solution to immediate financial needs without the extended waiting period often
associated with Personal Loan approvals.
Uses and benefits of Personal Loans and Overdrafts
Personal Loan
A Personal Loan delivers a lump sum, which can be instrumental in funding major
investments or consolidating debts. This option simplifies your financial obligations into one monthly payment,
typically extending over several years with a fixed interest rate, offering stability and predictability in
financial planning.
When to choose a Personal Loan?
Consider a Personal Loan when facing significant expenses that
you can't cover with savings, like extensive home repairs. It's also wise when consolidating debts, potentially
reducing the interest you pay overall and simplifying your finances with one monthly payment.
Personal Loan is an effective strategy to streamline finances and can potentially offer interest savings over time.
Overdraft
An Overdraft is a financial safety net attached to your bank account, offering a
ready-to-use credit line for unexpected expenses. This option is ideal for managing day-to-day cash flow
fluctuations without committing to a long-term borrowing arrangement.
When to choose an Overdraft?
Overdraft vs Personal Loan: Which is the better choice?
When weighing Overdraft vs Personal Loan options, the decision pivots on your financial situation and goals.
Personal Loans offer a structured finance plan, ideal for those with larger, planned expenditures who benefit from a
fixed repayment schedule. They provide clarity and consistency, often necessary for substantial long-term
investments or debt consolidation.
On the other hand, an Overdraft (OD) promises flexibility and immediate access to funds, making it a preferable
choice for managing short-term cash flow or emergency expenses. OD vs Personal Loan boils down to the need for
financial discipline versus financial agility. It’s a choice between a predictable repayment plan and a flexible
credit line that adapts to your immediate spending needs.
Conclusion
Deciding between a Personal Loan and an Overdraft with Axis Bank depends on your financial strategy and urgency of
your needs.
Personal Loans are structured, providing up to ₹40 lakh, with repayment periods stretching up to 84 months and
competitive interest rates beginning at 10.75% p.a. This makes them suitable for significant, one-time investments
such as home renovations or consolidating large debts.
On the flip side, Axis Bank’s 24x7 FlexiCredit
Overdraft aligns with those requiring swift, flexible access to funds, especially for short-term gaps. This
facility, available to salary account holders, entails paying interest solely on the utilised amount, with zero
documentation and no prepayment fees, offering a fluid solution for immediate or unforeseen expenses.
Also Read: Choosing the right
Personal Loan for your needs
FAQs
Is an Overdraft the same as a loan?
No, an Overdraft is a credit facility linked to your bank
account, while a loan is a separate financial agreement where money is credited as a lump sum.
Why is an Overdraft cheaper than a loan?
Overdrafts can be cheaper as you only pay interest on
the amount used, not the full available credit, avoiding fixed loan interest.
Is an Overdraft better than a loan?
Whether an Overdraft is better than a loan depends on your
specific financial need, the amount, and the time frame for use.
Does Overdraft affect CIBIL score?
Yes, excessive use or failure to clear an Overdraft can
negatively affect your CIBIL score, similar to any credit product.
Which one is better: Personal Loan or Overdraft?
Choosing between a Personal Loan and an
Overdraft depends on your financial situation, the amount needed, and the repayment flexibility required.
Disclaimer: This article is for information purpose only. The views expressed in this article
are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd.
and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader
for taking any financial decisions based on the contents and information. Please consult your financial advisor
before making any financial decision.
