Personal Loans or Overdraft Account: Which One is Best for You

One might find that personal loans or overdrafts are better options when trying to borrow money for personal emergencies like weddings, paying a payment, and other uses. But I frequently find myself unable to decide between the two. Personal loans are readily available and cheaply priced online from many banks and financial institutions. While personal loans and overdrafts may have high-interest rates and a similar appearance, knowing the essential distinctions will enable you to choose the one that best meets your needs and budget. We’ll help you evaluate both loans in this article so you can choose the one that best meets your needs. Let’s look more closely.

Personal loan and overdraft account

With overdrafts, you can borrow money from a bank or an NBFC without having to set up a repayment schedule as long as your current account is open. These loans are still available for immediate needs. As it is solely based on the account holder’s balance, overdraft funds have a fixed limit. In a personal loan, a lender gives you sizeable money for a specific amount of time along with an interest rate.

Difference between a personal loan and an overdraft facility

Interest rate

The interest rates on overdraft loans are greater than those on personal loans. When personal loans are approved, predetermined personal loan interest rates are imposed. The overdraft, however, does not accrue interest until it exceeds a permissible credit limit.

Credit limit

Based on his bank balance, an overdraft borrower is given a predetermined credit amount. It is flexible since a customer may withdraw any necessary quantity up to the designated limit. A personal loan’s amount or EMI cannot be changed by the borrower after the bank has approved it. Depending on the loan amount, the term of a personal loan can range from 0 to 25 years, although the term of an overdraft is shorter due to higher interest rates that apply if a sizable amount is borrowed. The flexibility aspect makes overdrafts more flexible because the repayment period might be as short as a few days or as long as a few weeks or months.


There are particular requirements for documents that must be met in order to obtain a personal loan. The loan amount is sanctioned within adat or yeo after the documentation has been verified as being complete. Overdraft is a more immediate and practical choice because it doesn’t involve any paperwork and you can withdraw the money whenever you want.

Mode of repayment

Only EMIs or other payment methods that the lender specifies are accepted for personal loans. When it comes to overdraft facilities, though, this is flexible because the borrower can select the method of repayment.

CIBIL score

Your CIBIL score is impacted by the repayment of personal loans. There are opportunities to raise or lower your CIBIL score. Your credit score may suffer as a result of check bounces, missed EMI payments, etc., making it more challenging for you to obtain loans in the future.

The overdraft, on the other hand, is free of these inconveniences, helping you raise your CIBIL score.

Applying for multiple loans

While an overdraft only permits you to take one loan that you are consistently repaying, a personal loan allows you to apply for additional loans. Therefore, if you are applying for many loans, personal loans are the ideal option.

Which one is right for you?

If you need to borrow a little sum of money, overdrafts are active. They offer a variety of advantages and are hassle-free and convenient.

Personal loans are a fantastic option if you need up to Rs. 25 lakhs in funding. Regardless of the loan you choose, talk to your lender about prepayment alternatives and penalties and use their personal loan calculator to estimate the monthly cost. Consider your alternatives carefully. Both loans, though, have a purpose. Apply for the appropriate sort of loan after understanding its function and ease of repaying.


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