Personal Loan or Overdraft: In personal loan, a lump sum amount is given to you by the bank. There is a fixed limit for repaying it. Whereas in overdraft, the interest amount is calculated on a daily basis based on the amount used and the number of days used.
Personal Loan or Overdraft: At some point or the other in our lives, we all need money urgently. At that time, the easiest option available to us is a personal loan. However, there is another option, overdraft that you can choose from among the credit options. Overdraft is a financial facility, through which you can withdraw money from your bank account even when there is no money in it. Whatever money is given to you under overdraft, it is given after looking at your records. You can avail this facility on your bank account.
What is personal loan?
Personal loan is an unsecured loan in which the bank lends you a fixed amount at a fixed interest rate for a fixed period. You have to pay a fixed EMI on a fixed date every month.
What is overdraft?
Overdraft is a credit line provided by the bank for a specified limit at a specified interest for a specified period. You have the facility to withdraw the amount from the sanctioned limit whenever you want. Additionally, you also have the facility to repay the amount whenever you want. Interest is charged on the amount used and the number of days used. There is no penalty on prepayment.
Difference between personal loan and overdraft
In personal loan, a lump sum amount is given to you by the bank. There is a fixed limit for repaying it. Banks charge huge interest on this. Every month you have to pay EMI. Whereas, in overdraft, the interest amount is calculated on a daily basis based on the amount used and the number of days used. The borrower has the flexibility to make payments whenever he wants. Overdrafts are usually more suitable for short-term periods of up to one year.
Personal Loan or Overdraft: Which is Better?
In the above section, we have discussed the difference between personal loan and overdraft. So, how do you decide whether a personal loan or overdraft is better for you? Well, it depends on the situation. Let’s discuss some scenarios and which one you should choose in each scenario.
Loan amount is known in advance: A personal loan is suitable for a person who knows exactly how much amount he requires and for what period. If you want to buy a mobile, laptop or consumer durable and already know the price, you can opt for a personal loan.
On the other hand, if you need money but are not sure about the exact amount, you can opt for overdraft. For example, if there is a medical emergency, and you are not sure what the hospitalization and post-hospitalization expenses are, you can opt for an overdraft. In such a situation, you can withdraw the amount as per your need.
