Personal Loan (OD Limit)
A Personal Loan Overdraft (OD) limit is a facility provided by banks or financial institutions to individuals who have an existing personal loan. It allows borrowers to access additional funds up to a certain limit over and above their original loan amount.Here's how it typically works:
1. Existing Personal Loan: The borrower must have an existing personal loan with the bank or lender.
2. Approved Limit: The bank approves an overdraft limit, which is an additional amount that the borrower can draw upon if needed. This limit is usually determined based on factors such as the borrower's creditworthiness, repayment history, and other financial criteria.
3. Flexible Access: The borrower can withdraw funds from the overdraft limit as and when needed, similar to how they would use a credit line. Interest is charged only on the amount utilized from the overdraft limit, not on the entire limit.
4. Repayment: The borrower needs to repay the amount drawn from the overdraft limit along with the applicable interest within the specified time frame, as agreed upon with the bank or lender.
5. Interest Rate: The interest rate on the overdraft amount may be higher than the interest rate on the original personal loan, as it involves a higher degree of risk for the lender.
6.Usage: The overdraft limit can be used for various purposes, such as meeting unexpected expenses, managing cash flow fluctuations, or funding urgent financial needs.
Overall, a personal loan overdraft facility provides borrowers with greater flexibility and access to additional funds beyond their original loan amount, albeit with the obligation to repay the borrowed amount along with interest according to the terms agreed upon with the lender.
