You can get more than the account balance using this facility
New Delhi: State Bank of India (SBI) offers its customers a special overdraft facility whereby you can withdraw an amount greater than your existing bank account balance.
Overdraft is a type of loan that allows customers to withdraw more money than they have in their bank account. This additional amount must be repaid to the bank within a certain period with interest charged daily. The overdraft facility can be offered by any bank or non-bank financial corporation (NBFC).
Your overdraft limit is determined by the respective bank or NBFC that gives you the overdraft.
How to register:
Banks offer a pre-approved overdraft facility to some of their customers. However, some customers need to get a separate approval for the same. You can request an overdraft either through a written request or through online banking.
However, you should be aware that some banks also charge a handling fee for this facility. There are two types of overdrafts, safe and dangerous. A safe overdraft is where something is mortgaged in exchange for these funds.
You can get overdrafts on things like FD, stocks, house / property, salary, insurance policy, bonds, etc. Simply put, it’s like taking a loan on stocks or FDs. In doing so, you are mortgaging the respective shares or FDs or any other property in exchange for that amount.
However, you can also benefit from an overdraft facility even if you have nothing as collateral. This is called an unsecured overdraft. An example of this would be withdrawing money from a credit card.
Advantages of overdraft
Each customer has a certain amount of time to repay a loan each time you take one out. In the event that one repays the loan earlier than expected, he has to pay a prepayment charge, but this is not the case with overdrafts.
In the event of an overdraft, you can repay the amount before the due date without having to pay a prepayment charge. At the same time, interest on the amount would only be charged for the length of time you used the overdraft facility. You are also not required to pay the amount in fixed EMI. A customer can repay the overdraft amount at any time within the stipulated time frame. It is because of these advantages that using the overdraft facility is cheaper and easier than taking out a loan.
Points to keep in mind when using the overdraft feature
If you can’t pay off the overdraft, it will be offset against what you have mortgaged. However, if the amount of the overdraft is greater than the price of the mortgaged objects, the balance will have to be paid by the customer.