Overdraft Facility
Financial emergency is not an unheard situation, and usually in such a situation when we are in monetary crisis we immediately look around for some credit to meet our present needs. Credit can be of any form like bank loans or credit cards, but rates of interest associated with them are quite high. Also, there are situations in which contingent funds are not enough to fulfill some short term financing needs.
Advantages:
- No monthly stock statement or debtors list required
- No yearly renewal requiredy
- Ease of repayment with OD dropping by 10% every year
- INTEREST levied only on utilization
So, what is the solution then? Overdraft facility, not many people are aware of this facility from banks against their assets to finance short term needs. It's quick to get approval from banks and cheaper compared to other loan offers. Here are the procedures and benefits of overdraft facility and how you should use it to meet your financial emergency.
Meaning of Overdraft facility: Overdraft facility is a credit given to an individual against his or her assets as collateral with banks. As collateral, you can offer following assets to banks:
What do we really mean by collaterals? We provide overdraft facility up to ten years against any collateral be it Office, Shop, Residential Property or Industrial Property. Using your house as a collateral: Bank does a valuation and survey of the property, then sanction an overdraft limit of up to 60% to 70% considering value of the property, your credit history and repayment capacity. Assume, as per valuation report, the current price of your home is Rs 1.5 crore, and then you are eligible for overdraft up to Rs 90 lakhs. However, this amount will not be disbursed immediately. It works like an approved loan and you are eligible to keep withdrawing amount from this overdraft account when required. You are eligible to pay interest rate from the time this overdraft is availed and amount withdrawn. The rates of interest for loans against property range vary depending Upon RBI Repo rate.
What is the process to apply for drop line overdraft facility? The process to apply for overdraft facility is similar to taking any other loan from banks. You will offer an asset as collateral to banks and obtain overdraft facility. The procedure for sanction of overdraft requires property valuation and survey from bank / government officer.
The overdraft facility provides advantages of both a term loan and cc as limit is dropped 10% yearly, thus helping to reduce liability and at the same time interest is charged only on utilization of loan like a cash credit facility thus helping to bring down cost of funds on net basis. It is advantageous for businesses with fluctuation in requirements or requirement peaking in particular season thus helping to take maximum advantage at peak times and not utilizing in dull seasons thus helping again to bring cost of funds to optimum level. We can also enhance the overdraft value after vintage period of 12 months depending on market value and business growth.
If you have decided to expand your business or fund your personal requirements through a Loan against Property, we advise you to first check eligibility criteria according to your employment status. If you are a salaried individual, you will require the following documents:
- Your Proof of Residence - A ration Card / Telephone Bill / Electricity Bill / Voters Card will do
- Your Proof of Identity - A Voter's Card / Driver's License / Employer's Card will do
- Your latest Bank Statement / Passbook from where you can show a salary / income being credited from the past 6 months
- Your Salary Slip from the last 6 months with all deductions shown. A Form 16 from the last 2 years will also be required
- Copies of all Property Documents of the concerned property that you chose to pledge for the loan
If you are a self employed professional/individual, you will require the following documents:
- Certified Financial Statement for the last 3 years
- Your Proof of Residence - A ration Card / Telephone Bill / Electricity Bill / Voters Card will do
- Your Proof of Identity - A Voter's Card / Driver's License / Employer's Card will do
- Your latest Bank Statement / Passbook from where you can show a salary / income being credited from the past 6 months
- Copies of all Property Documents of the concerned property that you chose to pledge for the loan