Personal loan or overdraft: Which one is better for you? MintGenie explains
When you need funds, you can choose from credit options like a personal loan or an overdraft. The choice between the two can be based on how long you need the money, how the interest is charged, how you will repay, etc. So, let us discuss what is a personal loan and an overdraft, the differences between them, and which one is better for you.
A personal loan is an unsecured loan in which the bank lends you a specified amount at a specified interest rate for a specified period. You have to pay a specified EMI on a specified date every month. A personal loan doesn't provide any flexibility for EMI repayment in terms of the amount to be paid and the date on which it can be paid.
If you foreclose the outstanding amount before the original tenure, the bank may charge you a penalty. Also, you have to pay interest on the entire principal amount, irrespective of whether you use the amount or not.
An overdraft is a credit line provided by the bank for a specified limit for a specified tenure at a specified interest. You have the flexibility to withdraw the amount from the approved limit whenever you want. Also, you have the flexibility to repay the amount whenever you want. The interest is charged on the amount utilised and for the number of days utilised. There is no penalty on prepayment.
Now that we understand the basics of a personal loan and an overdraft, let us know their differences.
In the above section, we have discussed the differences between a personal loan and an overdraft. So, how do you decide whether a personal loan or an overdraft is better for you? Well, it depends on the situation. Let us discuss some scenarios and which one you should opt for in each scenario.
The loan amount is known in advance: A personal
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