What is the difference between Personal Loan and Personal Overdraft Loan?

What is the difference between Personal Loan and Personal Overdraft Loan?

A personal loan and a personal overdraft loan are different lending instruments that make your financial life more manageable.
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We all have faced situations when we need a sizable sum of money at short notice or even without any notice. This could be necessitated by a medical emergency, an unanticipated business need, or even an unplanned vacation. Whether you are salaried or self-employed, there are two types of loans or credit schemes that you can choose for managing your financial obligations — Personal loan and Personal overdraft loan.


A Personal loan and a Personal overdraft loan are quite different and have specific use cases. Let us check out how these two credit instruments differ.


Additional Read: What is a personal loan

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What is an Overdraft loan or Overdraft facility?

An overdraft loan or personal overdraft loan is a facility offered by the bank through which customers can withdraw a certain amount of money even if there aren’t enough funds in their bank account. This is simply a line of credit offered by banks to customers based on their business, frequency of transactions, and average monthly and annual account balance. Remember that banks also charge interest on the overdraft amount, although this is not as high as the personal loan interest rates.

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What is a Personal loan?

A personal loan is a financial product offered by a bank/lending institution as credit. The loan amount is disbursed to the individual for a specific period, and the borrower must repay the loan within the time limit. The bank/lending institution receives interest on the principal amount but doesn’t necessarily require the borrower to mortgage their assets such as their property, vehicle, gold, etc.

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Overdraft loans vs Personal loan

  • Availability

    Borrowers need to provide mandatory documentation when opting for a personal loan, which is not the case with a personal overdraft loan. Taking a personal loan is a slightly lengthy process that requires the borrower to meet specific criteria and wait for the approval. A personal loan disbursal can take anywhere from 24 hours to 7 days, depending on the verification process.


    On the other hand, a personal overdraft loan or overdraft facility is something that you do not have to apply for every time you need funds. If you have this facility in your bank account, you can readily withdraw additional funds without informing the bank. However, you are required to deposit the excess amount along with interest within a specific time limit for the bank to keep providing this facility to you.

  • Eligibility

    Personal loans require the borrower to submit various documents such as income proof for the last six months, ITR for the previous three months, and KYC details. Despite providing all these documents, you still cannot ensure that the bank/NBFC will approve your loan application.


    In contrast, a personal overdraft loan doesn’t require you to prove your eligibility each time you utilize the overdraft feature. However, the bank can terminate the overdraft facility of your account at any time if you delay the repayment.

  • Repayment method

    Personal loans are repaid in the form of equated monthly installments (EMIs) within a stipulated time frame. The personal loan EMI calculator amount varies with the total loan disbursed and the interest rate applied by your lending institution.


    Meanwhile, a personal overdraft loan can be repaid simply by depositing the entire amount plus interest in the borrower’s bank account. You can also transfer the whole amount (overdraft + interest) directly to the bank through a cheque or wire transfer. The bank automatically deducts the amount, making you eligible once again for another overdraft as and when needed.

  • Prepayment

    Both a personal loan and a personal overdraft loan can be prepaid if the borrower manages to arrange for funds before the tenor of the loan. However, lending institutions charge a prepayment fee for prepaying a personal loan. In comparison, if you prepay a personal overdraft loan, you will not be charged any penalty or extra fee by the bank.


    Additional read: How to apply for an overdraft
     

A personal loan and a personal overdraft loan are different lending instruments that make your financial life more manageable. While personal loans are apt for salaried individuals with a fixed monthly income, a personal overdraft loan is an overdraft facility that your bank extends to your account. This means you can overdraw from your account up to a certain limit even if your bank account does not have funds to cover the entire withdrawn amount. This comprehensive guide will answer all the doubts you may have about Overdraft loans vs Personal loans.

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Key offerings: 3 loan types

  • Flexi Hybrid Term Loan
  • Flexi Term Loan
  • Term Loan

  • Withdraw and prepay – no extra charges
    You can withdraw from your limit and prepay as many times as you want, without extra charges.

  • Instalment pattern
    You can pay interest-only EMIs for up to 24 months, after which, the EMI will consist of both, the principal and the interest. EMI is applicable only on the withdrawn amount.

  • Flexi facility charges
    Flexi facility charges applicable based on your loan amount.

  • Withdraw and prepay – no extra charges
    You can withdraw from your limit and prepay as many times as you want, without extra charges.

  • Instalment pattern
    Fixed EMIs that cover both the principal and interest on the loan amount you withdraw.

  • Flexi facility charges
    Flexi facility charges applicable based on your loan amount.

  • Amount disbursed in one go
    The entire loan amount is disbursed at the start.

  • Instalment pattern
    Fixed EMIs that cover both the principal and interest.

  • Flexi facility charges
    No Flexi facility charges.

Personal loan interest rate and applicable charges

Type of fee

Applicable charges

Rate of Interest per annum

10% to 31% p.a.

Processing fees

Up to 3.93% of the loan amount (inclusive of applicable taxes).

Flexi Facility Charge

Term Loan – Not applicable

Flexi variant - A fee will be deducted upfront from the loan amount (as applicable below)

  • Up to Rs. 1,999/- for loan amount less than Rs. 2,00,000
  • Up to Rs. 3,999/- for loan amount from Rs. 2,00,000 to Rs. 3,99,999
  • Up to Rs. 5,999/- for loan amount from Rs. 4,00,000 to Rs. 5,99,999
  • Up to Rs. 7,999/- for loan amount from Rs. 6,00,000 to Rs. 9,99,999
  • Up to Rs. 8,999/- for loan amount from Rs. 10,00,000 to Rs. 14,99,999
  • Up to Rs. 9,999/- for loan amount from Rs. 15,00,000 to Rs. 19,99,999
  • Up to Rs. 10,999/- for loan amount from Rs. 20,00,000 to Rs. 24,99,999
  • Up to Rs. 11,999/- for loan amount from Rs. 25,00,000 to Rs. 29,99,999
  • Up to Rs. 12,999/- for loan amount of Rs. 30,00,000 and above

*All the Flexi facility charges above are inclusive of applicable taxes

*Loan amount includes approved loan amount, insurance premium, and VAS charges.
Principal Holiday Facility Fees
  • Up to Rs.1999/- for loan amount less than Rs.2,00,000
  • Up to Rs.3999/- for loan amount from Rs. 200000 to Rs.399999
  • Up to Rs.5999/- for loan amount from Rs. 400000 to Rs.599999
  • Up to Rs.7,999/- for loan amount from Rs. 600000 to Rs.999999
  • Up to Rs.8,999/- for loan amount from Rs.10,00,000 to Rs. 1499999
  • Up to Rs. 9999/- for loan amount from Rs. 15,00,000 to Rs.19,99999
  • Up to Rs.10,999/- for loan amount from RS. 20,00,000 to RS.2499999
  • Up to Rs.11,999/- for loan amount from RS.25,00,000 to RS. 29,99999
  • Up to Rs. 12,999/- for loan amount of Rs.30,00,000 and above

Above charges are inclusive of applicable taxes & will be deducted upfront from loan amount

*(Loan amount includes approved loan amount, Insurance Premium & VAS Charges)

Bounce charges

Up to Rs. 1,200 per bounce.
“Bounce charges” shall mean charges for (i) dishonour of any payment instrument; or (ii) non-payment of instalment (s) on their respective due dates due to dishonour of payment mandate or non-registration of the payment mandate or any other reason

Pre-payment charges

Full pre-payment

  • Term Loan: Up to 4.72% (inclusive of applicable taxes) on the outstanding loan amount as on the date of full pre-payment.
  • Flexi Term Loan (Flexi Dropline): Up to 4.72% (inclusive of applicable taxes) of the total withdrawable amount as per the repayment schedule as on the date of full prepayment.
  • Flexi Hybrid Loan: Up to 4.72% (inclusive of applicable taxes) of the total withdrawable amount as per the repayment schedule as on the date of full prepayment.

Part pre-payment

  • Term Loan: Up to 4.72% (inclusive of applicable taxes) of the principal amount of loan prepaid on the date of such part pre-payment.
  • Not Applicable for Flexi Term Loan (Flexi Dropline) and Flexi Hybrid.

*Foreclosure will be processed post clearance of first EMI

Penal charge

 Delay in payment of instalment(s) shall attract Penal Charge at the rate of up to 36% per annum per instalment from the respective due date until the date of receipt of the full instalment(s) amount.

Stamp duty (as per respective state)

Payable as per state laws and deducted upfront from loan amount.

Annual maintenance charges

Term Loan: Not applicable

Flexi Term Loan (Flexi Dropline): Up to 0.295% (inclusive of applicable taxes) of the total withdrawable amount (as per the repayment schedule) on the date of levy of such charges.

Flexi Hybrid Loan: Up to 0.295% (inclusive of applicable taxes) of the total withdrawable amount during the initial tenure. Up to 0.295% (inclusive of applicable taxes) of total withdrawable amount during subsequent tenure.

Broken period interest / Pre-monthly Instalment interest

Method of recovery of "Broken Period Interest/Pre monthly instalment Interest" would be as follows:


EMI Date : 2nd

Scenario 1: If Loan is disbursed on 1st or post 10th of the month:

For Term Loan: BPI amount will be capitalised, i.e added to Principal amount on Due date / Deducted from disbursement
For Flexi Loans: BPI amount will be capitalised, i.e added to Principal amount on Due date / Added to first instalment

Scenario 2: If Loan is disbursed between 3rd and 10th of the month:
First instalment will consist of interest for actual number of days

Note: Additional cess if any, will be applicable to all charges according to state law.

*Terms and conditions apply.

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