Is bank card higher than wage overdraft?

Lenders usually goal younger salaried debtors who might be going through a money crunch in direction of the tip of a month. But a number of banks supply an identical product – wage overdraft. Adhil Shetty, CEO, Bankbazaar.com, explains the standards to take a wage overdraft and issues a salaried ought to be careful for earlier than choosing it.

Banks most likely have a mortgage for each event, and a wage overdraft might be thought of one of many handiest. While it’s an admittedly handy method to entry emergency funds for the brief time period, it’s important to know how overdraft on wage works to utilise it appropriately.

A wage overdraft is a type of revolving credit score you could avail of in your wage account. Simply put, the wage overdraft works like a bank card. Depending on the phrases of the power provided in your account, you may be allowed to withdraw a specific quantity over and above the stability in your wage account once you want it.

Each financial institution has its personal set of eligibility parameters that decide the extent of overdraft they permit. Typically, the credit score line provided by banks ranges from one to 3 occasions your internet month-to-month wage; nonetheless, some banks might limit this to 80-90% of your wage or their fastened overdraft restrict, whichever is decrease.

For occasion, some banks might cap the overdraft at ₹3-5 lakh, whereas others might permit solely a a lot smaller quantity of round ₹1-1.5 lakh whatever the borrower’s earnings. Some banks might even permit an overdraft of solely ₹10,000-25,000 relying on their insurance policies.

The reimbursement choices additionally range from one financial institution to a different, however most present an computerized sweep facility whereby the quantity payable is auto-swept as and when there’s adequate stability obtainable.

The overdraft facility is prolonged solely to some choose wage account holders based mostly on their eligibility and credit score historical past. One should apply for the overdraft facility, normally through internet banking, and a few processing charges could also be concerned.

In most circumstances, this will not be charged upfront however solely after sanction of the overdraw restrict. There may additionally be an annual renewal charge in case you want to revolve the credit score past one 12 months.

It is vital to keep in mind that an overdraft on wage is pricey. Regardless of whether or not it’s easy curiosity or each day lowering stability, the common price of curiosity could be something from 1-3% monthly or 12-30% per 12 months, relying on the financial institution. Coupled with the processing charge and penalties in case of missed funds, this is usually a very costly type of credit score.

Unlike a bank card, it doesn’t include the advantages of unique affords or reward factors that may be redeemed. Unless you want laborious money, you might be higher off with a bank card that provides all these advantages and extra at a fraction of the price.

Moreover, with bank cards, you get an interest-free interval each month to repay no matter quantity you might have utilised. This makes bank cards a cheaper choice in comparison with the overdraft on the wage.

(Do you might have private finance queries? Send them to mintmoney@livemint.com and get them answered by trade specialists)

Subscribe to Mint Newsletters * Enter a sound e mail * Thank you for subscribing to our e-newsletter.

Never miss a narrative! Stay related and knowledgeable with Mint.
Download
our App Now!!