How to get overdraft facility from Bank?
To get overdraft facility from bank. You must know about the overdraft facility, it’s features, and eligible persons first.
Why you should get overdraft facility from bank:
An overdraft facility is a type of loan that allows a borrower to withdraw more fund from their account than currently available, up to a specified limit provided by the bank authority.
Difference Between Overdraft Facility & Term Loan:
An overdraft facility is almost similar to a term loan, but the main key difference is that when you get overdraft facility from bank with a specified limit, you have to pay the interest only for the amount withdrawn for the specific time limit.
But in term loans, the borrower has to pay the interest for the entire loan amount of the time limit the amount is utilised.
Eligibility for Overdraft Facility:
Overdraft facilities are provided not only to the business personnel, a salaried person can apply for overdraft facility and his application for that might be approved, but all these cases vary from bank to bank due to the eligibility criteria along with terms & conditions of the bank authority.
Types of Overdraft facility:
Overdraft facilities are mainly divided into two categories, they are: Unsecured overdraft facility and Unsecured overdraft facility.
- Unsecured overdraft is a credit facility is provided to the borrowers by the lending institute, without any kind of collaterals.
- But in case of Secured overdraft facility, borrowers have to deposit some kind of collaterals to avail the facility. The value of collaterals may vary depending upon the amount of overdraft facility or the terms and conditions of the bank policy.
Types of Collateral for Secured Overdraft:
The lending institute can ask for various types of collateral for the Secured overdraft facility. These collaterals are generally of the types as follows:
- Bank Deposits
- Insurance Policies
- Equity Investments
Apart from the above-mentioned collaterals you can also get overdraft facility from bank against any property mortgage. The mortgagedproperty may be your house, factory, buildings, etc. but the property must be registered in the borrower’s name, and the overdraft facility availed upon the collateral is a percentage of the collateral’s actual value. Here is an example of this:
If a borrower deposits a collateral of bank deposit of 1 Crore to get a secured overdraft, and all the procedures and required files are in proper condition then he is eligible for 80 lakhs to 85 lakhs.
But if a borrower deposits insurance policy & equity investments as collateral, then the borrower can get up to 60 lakhs as an overdraft facility.
The best collateral to get overdraft facility from bank, is to mortgage property, as you might get a higher overdraft value against it, but the borrower must maintain a good transaction as well as good credit behaviour also.
Procedure to Get Overdraft Facility from Bank:
To get Overdraft facility from bank, you can apply to your preferred banks by filling up the application form, as nowadays most of the banks now have a quick application process through online portal with instant sanction features, as the bank might already have your KYC details and transaction documents.
But the application form might be different depending upon the types of collateral, the borrower deposits as a mortgage.
Documents Required to Get Overdraft Facility
The documents you should provide for an overdraft facility are very nominal. The beneficiary must provide his KYC details, and income proof along with transactional documents.
- KYC Details:For salaried personnel, PAN card, AADHAR card, or electricity bill of the applicant’s residential address.
But for business personnel the documents related to their firm like tax files, electricity bill of their firm, trade license are considered as KYC details.
- Income Proof: For salaried applicants, salary account statements and salary slips are considered as their income proof.
For business applicants account statements and Income tax files are considered.
- Mortgage details: If the applicant wants to avail overdraft facility against any mortgage, then the documents related to the mortgage is also required during the application of the overdraft facility.
These required documents may vary for different scenarios and also depending upon the bank authorities terms and condition.