Overdraft Term Loan
Overdraft Term Loan
An overdraft is a flexible, short-term credit line that allows you to withdraw funds from your bank account beyond your current balance, with interest charged only on the amount used. A term loan, conversely, provides a fixed, lump-sum amount that must be repaid through regular installments over a predetermined, often longer, period.
Overdraft
Function:
Used for managing short-term cash flow gaps and urgent expenses.Flexibility:
High. You can withdraw funds as needed up to a set limit and repay them at your convenience.Duration:
Typically short-term, with an annual renewal.Interest:
Calculated daily on the amount used, not the full limit, which can lead to higher overall rates.Repayment:
Flexible, with no fixed Equated Monthly Installments (EMIs). Funds deposited into the account automatically reduce the overdrawn balance.
Term loan
Function:
Suitable for financing long-term, specific needs like buying assets, business expansion, or debt consolidation.Flexibility:
Low. You receive a single lump sum that you cannot replenish without reapplying.Duration:
Can be short, intermediate, or long-term, with repayment periods from years to decades.Interest:
Charged on the full loan amount from the time of disbursal, though rates are often lower than for overdrafts.Repayment:
Fixed monthly installments (EMIs), which can be easier for budgeting.