Current Account: Pros & Cons of overdraft facility

Posted on Monday, April 24th, 2023 | By Indusind Bank

In today’s dynamic business landscape, having a current account is essential for your business, regardless of its size. A current account provides a range of banking services that are specifically designed to cater to the needs of businesses, such as making and receiving payments, managing cash flow, and keeping track of expenses. One such feature that comes with a current account is the option to avail an overdraft facility. In this blog, we will explore the pros and cons of overdrafts on current accounts and why you should carefully consider whether or not to avail this facility. 

What is overdraft facility

Let’s understand what an overdraft facility is. An overdraft is a credit facility offered by banks that allows you to withdraw more money from your current account than what you actually have in your account balance. It acts as a short-term borrowing option, where you can avail funds beyond your available balance up to a pre-approved limit. The overdraft facility can be a useful tool for managing your cash flow and meeting unexpected expenses or bridging temporary gaps in your working capital. 

 Overdraft facility: Advantages  

One of the major advantages of availing an overdraft facility is that it provides you with a quick and convenient source of funds. It offers flexibility in managing your cash flow, especially during lean periods or when you need to make urgent payments. Overdrafts are also generally unsecured, which means that you do not need to provide any collateral or security to avail this facility. This can be particularly beneficial for small and medium-sized enterprises (SMEs) that may not have significant assets to offer as security for traditional loans. 

Another advantage of an overdraft facility is that you only pay interest on the amount you actually utilize from the overdraft limit. This means that you have the flexibility to use only the funds you need and pay interest only on that amount, which can be more cost-effective compared to traditional loans where you may have to pay interest on the entire loan amount. 

 Overdraft facility: Disadvantages

There are also some drawbacks to availing an overdraft facility. One of the main disadvantages is that the interest rates on overdrafts can be higher compared to other forms of credit, such as term loans. The interest rates on overdrafts are typically variable and can fluctuate over time, which can make it difficult for you to accurately predict your borrowing costs. Additionally, overdrafts are meant to be short-term borrowing options, and you may need to repay the outstanding amount in full or reduce the utilized amount periodically to avoid incurring additional fees or penalties. 

Furthermore, availing an overdraft facility may also lead to a higher level of debt for your business, which can impact your creditworthiness and financial stability. It is crucial for you to carefully assess your repayment capacity and consider the impact of an overdraft on your overall financial health before availing this facility. 

If you do not wish to avail an overdraft facility, you can also explore other options such as business loans offered by banks like IndusInd Bank. As IndusInd Bank provides pre-approved business loans* that can be availed within minutes, offering you a quick and hassle-free way to access funds for your working capital requirements, business expansion, or other financial needs. With flexible repayment options, competitive interest rates, and customized loan amounts, you can choose a loan that best suits your requirements and repayment capacity. 

 IndusInd Bank Current Accounts

Additionally, with IndusInd Bank Current Account, you can enjoy a range of features and benefits that are tailored to meet your specific banking needs. This includes quick and hassle-free account opening, personalized account numbers, access to pre-approved loans, convenient banking facilities, and user-friendly digital banking! 
 
So, don’t wait! Take your business to new heights of success with IndusInd Bank Current Accounts. Click here to open. 

Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision.  IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.