Personal Loan vs Overdraft - Comparison, Tenure Suits, Processing Time (2024)

FAQs

Personal Loan vs Overdraft - Comparison, Tenure Suits, Processing Time? ›

A personal loan provides more predictable repayment terms by requiring fixed monthly installments (EMIs) over a predetermined period (typically 1–5 years). An overdraft facility provides more flexibility by enabling any amount to be repaid over time as long as it stays within the credit limit.

With personal loans, there's a fixed repayment tenure. However, you have the freedom to choose the tenure of your choice from the given range. There's no fixed repayment tenure with overdrafts. You can repay the sum as and when you wish to.

Tenure can be a maximum of 36 months. 3. Are there any annual maintenance charges under Quick Overdraft?

An overdraft gives you immediate access to extra funds when you don't have any left. Ideal for temporary financial issues, unexpected expenses or emergency costs, an overdraft gives you the comfort of knowing you will always have financial back-up. You only pay interest on what you use.

Typically, the maximum tenure for a Personal Loan is around 60 months (5 years). However, certain lenders may extend this period to up to 7 years (84 months) or even longer.

Drawbacks of an arranged overdraft:

Your overdraft limit is likely to be lower than what you could expect to borrow with a credit card or personal loan. The interest rates on an overdraft may be higher than those on a credit card or personal loan, especially for long-term borrowing.

Overdrafts don't usually affect your credit scores unless you don't resolve them quickly and the account goes into collections. Checking accounts aren't included in your credit reports from the three major credit bureaus, but they could be included in your ChexSystems report.

A credit line allows you to borrow money up to a predetermined limit whenever and wherever you need it. At the same time, an overdraft lets you withdraw more funds than you have in your account up to a certain limit. Both credit lines and overdrafts come with fees and interest charges.

Cash Credits are only for business purposes. Overdrafts cover general needs, even on a personal level. An Overdraft is a document-free process. It can even be availed on existing accounts.

How long does it take for an overdraft to be approved? ›

When the arranged overdraft will be available. If your application is successful, your new arranged overdraft or limit will usually be available straight away.

Overdraft agreements don't come with any set repayment plan which you would get with a personal loan, for example, so you can pay it off in instalments. It's up to you how you clear your overdraft but the quicker you can do it, the less you interest will have to pay in the long run.

To lessen your Personal Loan EMI, consider making part-prepayments after a set number of EMIs. By applying extra funds, like bonuses, towards your loan's principal, you will see a drop in both the outstanding balance and interest. This decreases your EMI and shortens the loan duration.

A loan tenure of up to 20 years adds value as it does not substantially increase the total interest paid but surely cuts your EMI substantially. Very long-term tenures tend to work against the borrower as the fall in EMI amount does not really justify the higher interest paid out.

A form of loan that is paid off over an extended period of time greater than 3 years is termed as a long-term loan. This time period can be anywhere between 3-30 years. Car loans, home loans and certain personal loans are examples of long-term loans.

Should I get a loan to pay off my overdraft? If you can, it's a decent option, as it's likely to have a cheaper interest rate than your overdraft. Use our Loans Eligibility Calculator to check if you're likely to be able to get a loan.

An overdraft is flexible - you only borrow what you need at the time which may make it cheaper than a loan. It's quick to arrange. There is not normally a charge for paying off the overdraft earlier than expected.

An overdraft is a variable amount of borrowing agreed with your bank up to a set limit. A loan is a fixed amount of borrowing over a set term with regular repayments. Overdrafts allow you to borrow money as and when you need it up to a limit agreed between you and the bank.