Personal Loan vs Overdraft: Know the Key Differences

personal loan vs overdraft loan

If you need a loan to meet your expenses, you have two options: Personal loan or Overdraft Facility. Depending on your requirements, you can choose one of them to fulfill your dreams and goals. What are the key differences between personal loan and overdraft loan?

Availability: Personal Loan vs Overdraft Loan

For availing a personal loan, a lot of paperwork and verification documents are needed from your side. On the other hand, once a bank assigns you an overdraft facility, you can easily withdraw an amount from your bank account according to your convenience. In case you need to apply for another personal loan, you will have to go through the entire application process including verification of all documents again. However, getting an overdraft loan is a one-time process where you can withdraw money from your account at any time.

Interest Rate:

Overdraft facility carries a higher interest rate as compared to a personal loan. In the case of personal loan, a predetermined interest rate is levied on the loan amount sanctioned to you. In case of overdraft facility, no interest will be charged on the amount you do not borrow from your overdraft credit limit.

Credit Limit:

In a personal loan, the loan amount sanctioned by the bank is fixed and cannot be modified after the sanction. The loan amount in personal loan is mutually agreed upon by the bank and the borrower. In the case of an overdraft loan, different credit limits are assigned to different borrowers and you can withdraw any amount which is within the assigned credit limit.


The repayment tenure of personal loans can span over many years ranging between 5-20 years and varies according to several factors such as the quantum of loan. On the other hand, the tenure in case of overdraft facility is quite short as it carries a higher interest rate.


In a personal loan, the repayment needs to be done according to the EMI format prescribed by the bank or whichever format is decided by the lender. In the case of overdraft facility, the repayment can be done by the applicant according to his/her own discretion.

If you have taken a personal loan and want to repay the loan amount before the repayment tenure begins, the bank will charge prepayment fees. However, in the case of overdraft loan there is no fee levied in case of prepayment of the overdraft amount.

Both personal loans and overdraft loans have their own pros and cons. If you think that you need multiple personal loans, then it is better to opt for an overdraft facility. If you are planning to borrow a one-time lump sum amount and need a long repayment tenure, it is better to go for a personal loan. Make sure you go through all the documents and use the personal loan calculator before apply for a loan from your desired financial institution.

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About Deepti Verma 299 Articles
Deepti Verma is a Political/Social Writer with an opinion on almost everything! Follow @universal_rover