Is a Personal loan different from a Personal Overdraft?

June 22, 2022




Personal loans and Personal Overdraft are mostly used in financing for the short term; this might have made a bit of an idea that it is a similar functioned term. Though Personal loan and Personal Overdraft have a different beginning in the process, the end happens together. Choosing the one for you is an important decision. Read on to know the differences between personal loan and personal overdraft.


What is a Personal loan?

A personal loan is a financing tool that the lender offers to fulfil your expenses. This arrangement happens procedurally to ensure loan repayment in a defined period. If there is a delay in dues, the lender tends to impose the interest rate. In some cases, you need not provide collateral as a security for the repayment as it is unsecured.

What is Personal Overdraft?

Overdraft is a kind of agreement between you and your lender, and you can use excess money utilisation, which your account actually holds as a balance. The Amount of Overdraft allowance as credit is based on the amount you hold in your account.

How personal loans and personal overdrafts are similar?

Personal loans and overdrafts are used in similar platforms of short financial requirements. In both cases, the financial institution fixed the maximization approval amount by taking your previous records as an assurance of approval.

The distinct features of Personal loan and Personal Overdraft:

1. Accessibility:

With the proper document submission, the lender makes the personal loan available. When the amount is disbursed to your account concerning repaying the amount at a fixed period. To start a new account, the process starts from the initial steps of filing. In the case of Overdraft, this procedure does not apply. Once the Overdraft is applied, you can utilize it at any point with no time limit restriction.

2. Rate of Interest:

When a personal loan is approved, the pre-moduled rate of interest gets imposed on the loan amount. The interest rate is charged only when the loan amount is disturbed in the case of Personal Overdraft. The rate of interest for personal overdraft is marginally high when compared to Personal loan interest rates.

3. Credit limit alteration:

A personal loan is a mutual agreement between you and your lender on a certain amount as a loan. The loan amount in a Personal loan cannot be altered once the approval process happens. In the case of Overdraft, you can withdraw the needed amount, and the interest is imposed only for that particular loan amount.

4. Period of tenure:

The repayment period varies with different factors, and in most cases, as a default, the tenure period acts as 5-7 years. In Overdraft, the repayment period remains low as the interest rate is high.

5. Repayment Mode:

In personal loan matters, the repayment mode is based on EMI or the specified payment mode that the lender explained. In Overdraft, the medium of repayment is as dependent on your choice.

6. Pre-payment charges:

When you apply for a personal loan, and the loan gets approved, you decide to repay the loan before the repayment tenure starts, and the bank tends to impose pre-payment charges. In Overdraft, there are no such charges on repayments.

In what situations do you tend to request loans?

  • Medical urge.
  • Vacation Trips.
  • Renovators.
  • Educational Fee.
  • Accessories.
  • Vehicle.
  • Capital investments.
  • Debt sorts

Who is eligible to avail of these loans?

  1. Citizen of India.
  2. Should be in the age of 21 to 60 years.
  3. Having monthly income of more than Rs. 18,000.
  4. With a good Credit Score of at least 600 to 750.

What are the required documents?

  1. PAN Card.
  2. Aadhaar Card.
  3. Bank Statement for some period specified by the lender.
  4. Salary slips.
  5. IT Returns in the case of Self-employment.


These two different functions have varied characteristics, which are widely used by people of different statuses and their requirements. So the choice of one that is well suited is mandatory before opting for a loan or an overdraft.




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