Overdraft Facility - Meaning, Advantage, and Significance

 

What is an Overdraft Facility?

An overdraft facility is a financial arrangement between a bank and a customer, that allows the customer to withdraw more money than is currently available in their account. Almost every bank or financial institution in India provides an overdraft facility to its customers. The bank decides the loan amount and interest rate criteria. Let’s learn what an overdraft facility entails and how Terkar Capital simplifies the application process.

As the name suggests, the bank gives overdraft facilities to borrowers.  It is to withdraw money more than the balance available in their bank account to overcome working capital requirements. OD is a short-term loan that must be repaid as determined by the bank. It can be available even if the account balance is zero. Such a facility is available in both secured and unsecured ways. The borrower can be individuals, self-employed professionals, etc.

OD Facility Example

To effectively manage your money, it is critical to understand the concept of an overdraft. So, let’s simplify using the example below:

PQR Private Ltd, a company with a current account at XYZ Ltd Bank, has a credit balance of Rs 750 Lacs. The company needs to make a payment of Rs 820 Lacs to one of its vendors. After analyzing the expenses, the company realizes that it needs additional cash to make the payment.

Hence, the company approaches its banker and applies for an overdraft of up to Rs 850 Lacs. The banker approves the application at a reasonable ROI. Thus, the company can now use the overdraft amount as and when required and will pay interest on the amount used above the credit balance.

Overdraft (OD) Terms

The terms of a loan may vary depending on the borrower’s profile, repayment capacity, relationship with the banker, financial history etc.

Features of OD Facility

1. The overdraft facility helps in the effective working capital management of the company. It solves the immediate cash crunch. Also, It gives flexible repayment options to the current account holders.
2. The credit limit depends upon the relationship of the borrower with his banker and also his credit score.
3. Generally, the credit period is 12 months. Thus, the borrower has to renew the facility according to their requirements.
4. The interest is charged only on the extra amount used. Other than the credit balance of the bank account which varies as per the amount of the Overdraft.
5. The repayment of the OD is not done through EMIs. However, the borrower can pay as and when he is available with cash but before the end of the credit period.

Maximizing Your Overdraft Facility

The OD facilities can be a helpful way to manage your finances, but it’s important to use them wisely, as they can be expensive.

Here are some tips for maximizing your overdraft facility and avoiding unnecessary fees:

• Only use your overdraft facility for short-term expenses.
• Make sure you have a plan to repay your overdraft as soon as possible.
• Shop around for the best overdraft deal.
• Consider using a credit card instead of an overdraft facility.
• Be aware of the fees associated with overdrafts.

Learn more about the dropline overdraft facility here.

Overdraft facility at Terkar Capital

Terkar Capital is a financial institution that is known for providing overdraft facilities to its customers with ease. With Terkar Capital, borrowers can easily apply for overdraft facilities based on their needs and eligibility.

Particulars for OD Facility

# Min Amount (Rs. INR)  -  25 Lacs

# Max Amount (Rs. INR) (No capping) -  Rs. 100 cr +

# ROI  -  Repo Rate Linked

# Tenure -  Revolving

An overdraft is a helpful financial tool in times of need. However, it is important to understand its meaning and potential risks. We believe this blog provides an in-depth explanation of overdraft’s meaning, its usage, and how it works. Overall, this article provides a helpful overview of the concept of overdraft meaning in the context of Indian banking.

FAQs

1. What are the eligibility criteria for an OD facility?

There are no set criteria for eligibility. It varies from lender to lender. But factors like the borrower’s age, credit score, earning/turnover, and relationship with a banker are considered majorly.

2. What is the procedure for obtaining an overdraft facility?

A borrower applies for an OD facility. The bank checks their credit score, relationship with the bank, earnings, and eligibility. If approved, the OD is sanctioned.

3. Who can avail of the OD facility?

Current and savings account holders can get an overdraft facility from their bank, depending on their relationship with their banker. Individuals, self-employed professionals, and enterprises can be borrowers.

4. Is there any requirement for collateral?

Collateral depends on the borrower’s availability and whether they have it. ROI is higher for unsecured loans.

5. Who offers the overdraft facility?

Almost all banks provide Overdraft facilities to their saving and current account holders. Nowadays, financial institutions also provide such a facility.

6. How long can the bank account be overdrawn?

The time duration of the overdraft depends upon the agreement between the banker and the borrower. Generally, the facility is provided for 12 months and has to be renewed at maturity.

Understanding Secured Funding in India

In this growing world, everybody in some or another other way requires funding. i.e. to meet the expenses, also they may not have personal funds or savings to complete those. Such a need can arise for companies.

If we talk about a business, the need for finance can be for expansion, reconstruction or to pay the dues. At this moment the thought of a loan comes into the picture. Now the loan can be taken in two types-namely secured loans and unsecured loans.

Here, we will discuss getting secured funding in India.

What exactly are Secured loans?

Secured funding is a type of loan where the borrower has to keep collateral of assets or security against the loan. In case of default, the lender has the right to put the asset or security pledged on auction and recover the amount from it. The borrower here does not have personal liability towards the loan. The period of loan offered in secured is high with a low Rate of interest. 

We at Terkar Capital make an easy process of securing loans for our customers. Our team of experts analyzes each aspect properly and works accordingly.

Features of Secured Loan

• The interest rates in secured loans are lower than unsecured due to the presence of security.

• Customer credit is not the compulsory criteria here, banks may or may not ask for a CIBIL score. In the case of secured loans, the borrower gets a loan even if its CIBIL score is less.

• The period of the loan can be both fixed and variable. The borrower has the option to extend the period of the loan.

• In case of default, the lender can recover the amount from the mortgaged asset.

The disadvantage of secured loans

• If the borrower even after the tenure of the loan is unable to pay off his loan amount his CIBIL score will get affected. However, this will also influence his future loans.

• In case of default, the asset will be seized by the lender's company and an auction will be conducted to recover the amount. So, the borrower will lose its asset, which may affect its business directly or indirectly.

• The procedure or time required of a loan is lengthy as the lender has to inspect many things right from assets information to borrowers' business, etc. Heavy paperwork is another disadvantage of secured loans.

Who can apply for Secured Loans?

The businesses or corporates that have fixed assets and need money for expansion, reconstruction, undertaking new ventures, or paying dues can apply for secured loans.

Eligibility

• The applicant should be a Resident of India.

• The age of the applicant should be between 18 to 60.

• The applicant should possess a fixed asset.

• Many times there are income-based eligibility criteria for loans but there are no such fixed structure criteria, it varies. The companies have to provide certain income statements or financial statements as per the requirement of the lender.

Why Terkar Capital?

Terkar Capital is one such financial firm, that provides hassle-free secured as well as unsecured business funding in India. We are one of the most modernized and highly specialized loan facilitators which understand borrowers’ needs, strengths, and weaknesses and work hard to provide the best services. So whenever it is raising funds, it is us!

 

 

What is Drop-line Overdraft (DLOD)?

 

Drop-line Overdraft (DLOD)

Drop-line Overdraft (DLOD) is a facility granted to the customer by the financial institution where businesses can overdraw from their current account up to a limit that is agreed upon by the banker. Overdraft is one of the most efficient forms of borrowing as one needs to pay interest only for the amount of money withdrawn. 

The Drop-line overdraft is almost similar in all the cases except in new cases as there is the availability of the limit. This withdrawal limit reduces each month from the limit which is sanctioned. The calculation of the Interest rate is done on a daily basis and it is charged at the month's end. You will be charged only for the amount used, you can always park your funds in a virtual account whenever funds are not in use.

 

Features of Drop-line Overdraft:

1. It can come in both forms of loan i.e. Secured and unsecured loan

2. In case one opts for unsecured DLOD, there is no requirement of any collateral to be provided.

3. DLOD is a hybrid of both term loans and overdraft facilities.

4. The limit of the withdrawal reduces monthly from the sanctioned limit.

5. The facility is only available for the current account, which means the amount is only credited to the current account from the bank.

6. The interest is calculated on a daily basis as the amount is withdrawn and is charged only on a monthly basis.

7. DLOD is the best facility for manufacturers, retailers, traders, and service providers.

8. There is no kind of yearly renewal charges levied.

Who is eligible for the Drop-line Overdraft facility?

The DLOD facility can be availed by any entrepreneur, proprietors, self-employed professionals, private companies or partnership firms, etc.

 

What are the documents needed for the DLOD facility?

General requirements

• KYC Documents of borrower and co-applicants.

1. Aadhar Card

2. PAN Card

Statutory documents

In the case of a Proprietary Firm:

1. Shop Act

2. GST certificate

3. Udyog Adhar certificate

In the case of Partnership Firm:

1. Shop Act

2. GST certificate

3. Udyog Adhar certificate

4. Partnership deed 

In the case of a Private limited company:

1. Certification of incorporation 

2. AOA

3. MOA

Income documents

1. Last 3 years Financials (audited)

2. Last 3 years ITR

3. Existing loans status

4. 1-year Banking

Why Terkar Capital for DLOD Facility?

If you are looking for an institution that you can rely on for availing Drop-line Overdraft facility, Terkar Capital is the one you should reach out to. We at Terkar Capital work for corporate to raise the funds and will make sure you have a hassle-free experience in the funding. Our transparency, confidentiality, and professionalism make us efficient to operate and arranging the funds. So whatever and whenever the requirement is, Terkar Capital will be ready to serve you.

‌Everything you need to know about CIBIL score

 

What is a CIBIL Score?

In the year 2000, Trans Union CIBIL was incorporated as Credit Information Bureau of India Limited. This organization issues a score called a CIBIL score for a borrower. It is also known as credit score. This score denotes the creditworthiness of the borrower and his ability to repay the loan on time.

What is a Good Credit Score?

A person who has a good Credit Score has the ability to repay the loan with interest on the given time to the bank. A Score is a three-digit number calculated on the basis of the financial history of the applicant. It ranges from 300 to 900. The higher the score the better chance of your loan being approved. 79% of the loans approved are for those who have a score of 750 or more, says CIBIL’s analysis. Learn more.

Factors affecting CIBIL score

The score is based on several factors. Such as your payment history, types of credit and number of loan accounts, guarantors on the loan, credit history, opening and outstanding loan amount, and so on. Different financial institutions have different regulations and benchmarks with respect to the score.

CIBIL score is like the first impression of the borrower for a financial institution. A person who manages his finances well will always have a higher score. A lower CIBIL signifies that the borrower has low creditworthiness and lenders refrain from giving loans to such applicants.

Did you know? How does a CIBIL score affect your loan eligibility?

Advantages of a Good Credit Score

A high Credit Score leads to several advantages for a borrower. Here are a few key advantages:

1. Credit from Lenders

If an applicant has a good CIBIL score, he may get a loan from a financial institution with a lower interest rate and minimum documentation. However, if the CIBIL score of a candidate is low, the financial institution may reject his application for a loan or offer it at higher rates of interest.

2. Quick Approval

A high CIBIL score states that you have good creditworthiness. Also will repay your loan on time to the lender. Therefore, the financial institution will process your loan faster. The ones who have a low CIBIL Score may have to submit a number of documents and find guarantors making the loan disbursal process time-consuming.

3. Low-interest rate

Those who have a higher CIBIL, get a loan at a lower interest rate than the ones who have a lower one. This is because when one has a higher CIBIL score, the banks trust the borrower more than the ones who have a low one.

4. More Negotiation

For people who have a higher score, the financial institutions will grant loans to them quickly and at a low-interest rate. Therefore, they get more negotiation authority to negotiate with the banks for a lower interest rate.

5. Higher Limit Loans

With a good CIBIL, you may get the loans to the upper limit. Therefore, you should definitely do your CIBIL report check.

6. Easy Approval for Leased Properties

A good credit score assists us to get easy approval for loans even for rented or leased properties. Like commercial complexes, apartments, and so on.

7. Amazing Credit Card Offers

If you have a good score, you may also enjoy credit card offers from various banks. These cards generally have higher limits, more privileges, and amazing offers and cash-backs.

What is your CIBIL score? Check out here.

To conclude

A CIBIL is also known as a Credit score. is a very important factor while applying for a loan. Financial institutions, banks, and other agencies consider this when evaluating the creditworthiness of a person. The higher the credit score you have, the better it is for you. If a person has a low score, it means that he has not been able to pay his bills on time, or has a history of non-payment of bills. A person with a low score might not be able to get the best interest rates from a bank, or might not be able to get a loan at all.