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What is a salary overdraft from the bank?

Salary overdraft is a facility extended against salary account only to some select salary account holders. This facility enables salary account holders to withdraw or issue cheques for an amount in excess of what is maintained in their salary account.

Customers seeking to avail the facility will have to separately apply at the concerned bank branch or can download the form for salary overdraft available on the bank’s website. One can also apply for the overdraft facility at the time of opening the salary account with the bank.

The bank charges a one-time processing fee for processing the overdraft facility request. For renewal of the request, banks levy renewal fee that can be either a fixed amount or a percentage of the overdraft credit.

How does the Overdraft Facility work?

Customers seeking to avail overdraft facility will have to apply to the bank in which they have an account or planning to open a salary account. Banks charge a fixed amount while making the facility available and also at the time of renewing. 

The overdraft facility extended to customers is linked to the monthly take-home salary in which bank one has the account. Few banks allow 50 per cent of the take-home salary with some capping while others offer up to thrice the value of salary. So, if one’s monthly take-home salary amounts to Rs 1 lakh one may get as low as Rs 50,000 or a maximum of Rs 3 lakh as overdraft facility credit, depending on the bank one has a salary account with.

Benefits of Salary Overdraft

Customers availing the facility of Salary Overdraft are offered the convenience of withdrawing cash at minimal interest rates that are charged as per usage.

Listed below are the benefits of availing Salary Overdraft from Bank:

• Simple documentation
• The minimal interest rate charged
• Faster processing and disbursal
• Payment only for the utilised limit

What is the interest rate charged for salary overdraft account?

The interest charges on overdraft facility vary from bank to bank, ranging between 1.3% - 2.5% per month. The interest is calculated on a daily basis and one has to pay the interest per month on the borrowed amount.

Few banks allow repaying a minimum sum for the borrowed amount. There are no prepayment charges for early payment of the overdraft amount.

It is advisable to avail the facility within the monthly salary which can be repaid from the next month’s salary.  

Personal Loan or Overdraft Facility. Which is a better option?

Both the facilities offer funds but there are few major differences. Let us analyse these below.

• CIBIL score plays a major role in the approval of the personal loan and the money is available only when the loan is approved. Every time one is in need of money, the same documentation process has to be followed over and over again.

Whereas in case of overdraft facility there is no need for setting up of overdraft account over and over again. One can withdraw money once the account has been set up within a couple of hours.

• There is a limit set for in case of a personal overdraft, whose repayment can be done as per convenience. It can be within a week, month or as per the suitability of the customer.

In the case of personal loan, there is no scope of flexibility. One has to repay the amount at a pre-decided tenure.

• An overdraft facility the interest is charged only when the amount is withdrawn from the account. There are no charges for prepayment.

With personal loans, the interest is applicable from the first month itself irrespective of the amount being used or not.

• In personal loans, borrower’s CIBIL score gets impacted if there is non-repayment of 3-4 EMIs. It takes a lot of time to get the CIBIL report corrected.

These possibilities are not there in case of overdraft facility. Customer is at ease to repay the amount as and when it suits him.

It is better to choose an overdraft facility instead of multiple personal loans. 

Best Overdraft facility account for the Salaried

Bank	Name of OD	Interest Rates	L.A	Tenure	PF
ICICI Bank	Salary Overdraft for those maintaining salary account with ICICI	As applicable by the bank	Up to Rs 4 lakh	As applicable by the bank	As applicable by the bank
HDFC Bank	Smart draft (For salary account holders)	As applicable by the bank	Rs. 25,000 to Rs. 1.25 lakh.	This facility is extended for a period of one year (12 months). It can be renewed (subject to bank policy and appraisal norms)	As applicable by the bank
SBI	SBI Maxgain	7.90%-8.55%	Above Rs 20 lakhs- Up to Rs 3 crores	Up to 30 years	0.35% of loan amount+GST