Five Wise Things To Remember Regarding Overdraft Facilities

Overdraft facilities can be a convenient way to manage your finances when you run short of funds. They offer a flexible line of credit that allows you to withdraw money up to a pre-approved limit. However, before you opt for an overdraft facility, you should keep some essential things in mind. 

The banking institution will impose a limit on an overdraft based on the fixed deposit amount. The time frame for repaying an overdraft is not set in stone. The borrower is responsible for paying interest as long as he has the money.

This article will discuss five wise things to remember regarding overdraft facilities.

1. Know the fees: Overdraft facilities have costs varying from lender to lender. It is essential to understand the fees associated with the facility, such as interest rates, annual fees, and transaction fees. Compare different lenders and choose the most competitive rates and charges.

2. Understand the interest rate: Overdraft facilities come with an interest rate that is usually higher than other types of credit. Make sure to understand the interest rate on a quick personal loan and how it is calculated. The interest rate can be fixed or variable and can be charged daily or monthly. The interest rate can also vary based on how much credit you use and how long you use it. Personal loan interest rates in India are very low.

3. Manage your credit limit: Overdraft facilities have a pre-approved credit limit based on your creditworthiness. Managing your credit limit carefully and only borrowing what you need is essential. Borrowing more than you can afford can lead to high-interest charges and penalty fees. Make sure to regularly monitor your account balance and keep track of your transactions.

4. Read the terms and conditions: Overdraft facilities have terms and conditions that you should read carefully before signing up. The terms and conditions will outline the fees, interest rates, credit limit, repayment terms, and other applicable requirements. Understand the terms and conditions and ask your lender if you have any questions.

5. Use it wisely: Overdraft facilities can be a convenient way to manage your finances, but they can also lead to financial trouble if not used wisely. Use your overdraft facility only when needed and repay the amount immediately. Avoid using the facility for unnecessary expenses or long-term borrowing. Make a plan to pay off your overdraft facility and stick to it.

In conclusion, overdraft facilities can be a valuable tool for managing your finances, but it is essential to use them wisely. Ensure you understand the fees, interest rates, credit limits, and terms and conditions. Manage your credit limit carefully, read the terms and conditions, and use your overdraft facility only when needed. With these things in mind, you can make the most of your overdraft facility and avoid financial trouble.

Also read: Which is better for funding your car loan: fixed or reduced rate of interest?