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Understanding Overdraft Loans in India (2025): Eligibility, Interest Rates, and Benefits
7/25/20253 min read
In 2025, overdraft loans have become an increasingly vital credit option for individuals and businesses across India. Their flexibility, ease of access, and cost-effective usage make them a preferred short-term credit solution.
🟩 What Is an Overdraft Loan?
An overdraft loan is a credit facility linked to a savings or current account that allows you to withdraw funds beyond your account balance, up to a pre-approved limit. It acts as a revolving credit line, where interest is only charged on the amount utilized, and you can repay anytime to reduce interest cost.
🟧 Eligibility Criteria for Overdraft in 2025
To qualify for an overdraft loan in India, the following basic criteria apply:
Indian resident, aged between 21 to 65 years
A stable income source—either salaried or self-employed
A good credit score, typically above 700
Must hold a savings or current account with the lender
For secured overdrafts, collateral like FDs, LIC, property, or shares may be required
Certain overdraft types, such as salary-linked or PMJDY overdrafts, come with relaxed eligibility and minimal documentation.
🟪 Current Overdraft Loan Interest Rates (2025)
Interest rates on overdrafts vary based on the type of facility and borrower profile:
Unsecured overdrafts: Between 18% to 24% per annum
Secured overdrafts (e.g., against FD): Around 1–2% above the FD rate
Salary-linked overdrafts: Range from 12% to 14% per annum
💡 Example: If your FD earns 6%, your OD interest may be around 7–8%.
Interest is only charged on the utilized amount and for the period it is used, making it cost-efficient for short-term requirements.
🟥 Major Benefits of Overdraft Loans in 2025
🟦 ✅ Flexible Usage with No Fixed EMI
Borrow only what you need and repay anytime. You pay interest only on the used amount, not the full limit.
🟩 ✅ No Prepayment Charges
As of 2025, borrowers are exempt from prepayment or foreclosure charges on floating-rate overdraft facilities for individuals and MSMEs—especially when prior notice is given or the account is closed by the bank.
🟧 ✅ Instant Approvals for Secured ODs
Overdrafts against FDs or salary accounts can be approved instantly with minimal documentation. Many banks offer online application and activation.
🟪 ✅ UPI-Enabled Overdraft Usage
From August 2025, users can link overdraft credit lines to UPI and transact or withdraw directly, enabling seamless access to funds via mobile apps.
🟥 Types of Overdraft Facilities Available
Overdraft against Fixed Deposits
Overdraft against Salary
Overdraft against Property or Securities
Business Overdraft (Cash Credit)
PMJDY Overdraft for Jan Dhan account holders
Each type has its own eligibility, usage limit, and interest rate—tailored to personal or business requirements.
🟦 How to Apply for an Overdraft Loan
Contact your bank or apply online via their app
Select the OD type—secured or unsecured
Submit identity, income proof, and bank statement
Review the sanction letter and Key Facts Statement
Once activated, withdraw or transfer funds as needed
⏱️ Tip: Always repay unused OD amounts early to minimize interest charges.
🟩 Who Should Use an Overdraft in 2025?
Salaried professionals with temporary cash flow needs
Entrepreneurs and MSMEs for working capital
FD holders needing liquidity without breaking deposits
Individuals with unpredictable income like freelancers or consultants
🟧 Risks and Considerations
⚠️ High interest rates if used long-term
⚠️ Penal charges for exceeding limits or delayed repayments
⚠️ Renewal dependency—failing to renew may cause automatic closure
⚠️ Misuse may lead to debt traps if not monitored properly
🟪 Conclusion
In 2025, overdraft loans in India have evolved into a dynamic, transparent, and accessible credit solution. With no prepayment penalties, flexible interest charges, and UPI-linked access, they are an ideal choice for short-term funding. Whether you’re an individual or a business, choosing the right overdraft type and managing it responsibly can offer unmatched liquidity and control.
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