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Everything About Overdraft Loan Explained

Published on Feb 1, 2023Updated on Aug 29, 2023

Everything About Overdraft Loan Explained

Have you ever found yourself short of cash for an emergency, only to find out that your account does not have enough funds? You may be tempted to borrow money from friends and family or use credit cards. This is where an overdraft loan comes into play.

In this blog post, we’ll explain everything about overdraft loans, from how they work to their advantages and disadvantages. We’ll also provide some tips on how to best use them so that you can make the most of your financial situation.

What is an Overdraft Loan?

An overdraft loan is a type of loan that allows you to borrow money up to a certain limit in order to cover your expenses if you do not have enough funds in your account. This type of loan can be helpful in case of an emergency, such as unexpected medical bills or car repairs.

The interest rate on an overdraft loan is typically higher than the interest rate on a regular loan, so it is important to only borrow the amount you need and to repay the loan as soon as possible. You may also be charged fees for taking out an overdraft loan, so be sure to check with your lender before taking one out.

How To Get an Overdraft Loan?

An overdraft loan is a type of loan that allows you to borrow money from your lending firm or credit union when you don’t have enough funds in your account to cover a purchase. This can be helpful if you have an unexpected expense or need to cover a short-term cash flow issue.

To get an overdraft loan, you will first need to contact your lending firm or credit union to see if they offer this type of loan. If they do, you will need to fill out a loan application and provide documentation of your income and debts. Once approved, you will typically be able to access the business loan funds within a few days.

Keep in mind that overdraft loans often come with high interest rates and fees, so it’s important to only borrow what you need and make sure you can repay the loan on time.

Benefits of Overdraft Loan

  • They can provide a quick source of cash in emergency situations
  • They typically have lower interest rates than credit cards or payday loans
  • They are often easier to qualify for than other types of loans 
Must Read: How Do I Know If I Qualify For a Loan?

Drawbacks of Overdraft Loan 

An overdraft loan can be a great way to get quick cash when you need it, but there are some drawbacks to consider before taking out this type of loan:

  • They can be expensive if used frequently or for long periods of time, as the interest can add up quickly
  • They can be hard to control and may lead to more debt if not used responsibly
  • They may also come with additional fees and penalties if the account is overdrawn for an extended period of time. 

Why Choose Loan Against Securities over Overdraft Loan? 

  1. Lower interest rates: Since a loan against securities is a secured loan, the interest rates are typically lower than those of an unsecured overdraft loan.
  2. Flexible repayment terms: Loans against securities may have more flexible repayment terms than overdraft loans, which can make them more manageable for the borrower.
  3. Continued earning: Borrower can earn returns on their investments while also using the funds for other purposes.
  4. Collateral: A loan against securities is secured by collateral, meaning that if the borrower defaults on the loan, the lender can seize the collateral to recoup their losses. This provides more security for the lender and may result in better loan terms for the borrower.
  5. Credit Score: An overdraft facility can affect the credit score negatively, if not paid on time. But, a loan against securities does not affect the credit score in the same manner as it is secured by collateral and the risk is lower. 

It's important to note that the specific terms and conditions of a loan against securities will vary depending on the lender and the borrower's financial situation, so it's always best to carefully review the terms and conditions before making a decision.


SMFG India Credit does not offer any such overdraft loan facility; nonetheless, interested candidates may be eligible for a loan against securities. A loan against securities is a type of collateral loan where you can borrow funds by pledging financial assets such as shares, mutual funds, ETFs, and bonds as collateral, with loan amount ranging from INR 5 lakhs to INR 20 crores* and interest rate ranging from 9% to 18%*. Indian residents and business entities are eligible to apply for this loan. Apply today to make the most of it.

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*Terms and Conditions apply. Loans are disbursed at the discretion of SMFG India Credit.