An overdraft charges interest only on what you draw and only for the days you draw it, which makes it the right instrument for irregular, short-term needs and the wrong one for a fixed purchase. Its danger is the mirror image of its advantage: with no fixed repayment schedule, an overdraft can sit drawn for years.
| Interest charged on | Amount drawn × days used |
|---|---|
| What it means | Not on the sanctioned limit — but renewal and non-utilisation fees may apply. |
as of 2026-08-17 · Bank tariff schedules · reported
What to know
The cheapest overdrafts are secured — against a fixed deposit, as a loan against FD, against shares and mutual funds as a loan against securities, or as a home loan overdraft variant. An unsecured overdraft or credit line is priced like a personal loan and carries the additional risk that, without an amortisation schedule, the balance never falls.
Set your own repayment discipline, because the product will not impose one. Treat the drawn balance as a loan with a self-imposed twelve-month schedule, and use the EMI calculator to see what that instalment would be. Without that, an overdraft becomes permanent debt at a rate you would never have accepted as a term loan.
Frequently asked questions
How is overdraft interest calculated?
On the amount actually drawn, for the number of days it is outstanding, typically applied monthly. Some lenders also levy a renewal fee or a non-utilisation charge on the undrawn limit — check the tariff schedule.
Is an overdraft better than a personal loan?
For irregular or uncertain-timing needs, yes — you pay only for what you use. For a known one-time amount, a term loan is usually cheaper and enforces repayment through its schedule.
What is a home loan overdraft?
A variant where surplus funds parked in a linked account reduce the interest-bearing balance while remaining withdrawable. The interest saved is not taxed, unlike interest earned on a deposit, which makes it efficient for anyone holding a cash buffer. If you need the money for a purpose rather than as a buffer, a home loan top-up is the cheaper way to borrow against the same property.
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