Overdraft vs Personal Loan: Key Differences Explained
When you need extra money, there are two popular options which you can avail- overdraft loans and personal loans. Both can help in different situations, however, they work in different ways. So, before you choose which loan option you want to go for, it is important to understand the differences between them so you can opt for the right option for your needs. Let’s understand more about what overdraft and personal loans are, their advantages, and disadvantages, and which one might be the best fit for you.
What is an Overdraft Loan?
An overdraft loan lets you take out more money from your bank account than you actually have. In other words, it is like borrowing from your bank when your balance is low. You are given a limit, and you can withdraw money up to that limit whenever you need it. The best part is you only pay interest on the amount you use, not on the full limit.
Advantages of Overdraft Loan
- You can borrow any amount within your limit as per your needs.
- Interest is charged only on the amount you withdraw.
- You do not have to make fixed payments every month, and this allows more control over your finances.
- You can use the money immediately without waiting for loan approval.
- Once you repay the amount, you can use the overdraft again.
Disadvantages of Overdraft Loan
- Interest rates on overdrafts are usually higher than on personal loans.
- As payments are not fixed, it is easy to forget how much interest you owe.
- Your bank decides the overdraft limit, and it may not be enough for large expenses.
- It is easy to keep using the overdraft, which can lead to a debt trap.
What is a Personal Loan?
A personal loan is a one-time loan where you borrow a fixed amount of money and agree to repay it in fixed monthly instalments (EMIs). You can use this loan for many reasons like paying medical bills, renovating your home, or covering other big expenses. Personal loans usually come with a set interest rate and repayment period, and hence, you know exactly how much to pay every month.
Advantages of Instant Personal Loan
- You know exactly how much you need to pay every month.
- Personal loans generally let you borrow more than an overdraft.
- Personal loans usually have lower interest rates compared to overdrafts.
- You do not need to offer any assets like a house or car as security for the loan.
- Instant loan apps, like CASHe, can approve and disperse the loan quickly, usually within minutes.
Disadvantages of Instant Personal Loan
- Some lenders charge a fee if you want to repay the loan early.
- You may have to meet certain criteria to get a personal loan, which could delay approval.
- If you need another loan after you repay an existing personal loan, you will have to go through the application process again.
Overdraft vs. Personal Loan: Key Differences
| Feature | Overdraft Loan | Instant Personal Loan |
|---|---|---|
| Repayment | No fixed repayment | Fixed monthly EMIs |
| Interest | Only charged on the amount you use | Charged on the full loan amount |
| Loan Amounts | Smaller amounts | Larger amounts |
| Best For | Small and short-term expenses | Bigger expenses |
| Interest Rate | Higher interest rates | Lower interest rates |
Overdraft vs. Personal Loan- Which Loan is Better for You?
Whether you wish to go with an overdraft or a personal loan, it all depends on what you need the money for. If you need flexibility and are unsure of how much you would need, an overdraft loan could be the best choice. On the other hand, if you need a larger amount of money for a specific purpose, like a home renovation or medical bill, a personal loan may be better.
If you are looking for a fast and easy personal loan option, you can try the CASHe app. CASHe offers instant personal loans with simple terms, competitive interest rates, and quick approvals. Download the CASHe app and explore the instant personal loan options today!
FAQs
1.What is an overdraft loan?
An overdraft loan lets you withdraw more money than what’s in your bank account, up to a set limit. You only pay interest on the amount you use.
2.How does an overdraft loan work?
In an overdraft loan, you get a borrowing limit from your bank and can withdraw funds beyond your account balance. Interest is charged only on the used amount.
3.What are the main differences between an overdraft loan and an instant loan?
Overdraft loans offer flexible borrowing and repayment, with interest only on the used amount. Instant loans have fixed monthly payments and are better for larger sums.
4.What are the key features of an instant loan?
Instant loans offer quick approval, fixed EMIs, and usually lower interest rates. They are perfect for you if you are looking for larger expenses.
