What is Overdraft Facility? Meaning, Interest Rates & How OD Works

Overdraft meaning: what is an overdraft facility in a bank?

An overdraft (OD) facility lets you withdraw more money than you actually hold in your current or savings account, up to a pre-approved limit. Think of it as a credit line attached to your bank account: the bank sanctions, say, ₹25 lakh, and you dip into it whenever business expenses exceed your balance.

• Pay interest only on what you use, for the days you use it.
• No fixed EMI — deposit money back anytime to reduce interest.
• Renewable annually, with the limit reviewed against your account conduct and financials.

How does an overdraft facility work?

Suppose your OD limit is ₹20 lakh and you withdraw ₹8 lakh for a supplier payment for 20 days. Interest is charged only on ₹8 lakh for those 20 days. Once your customer payment lands and the account goes positive, the interest clock stops. This flexibility is exactly why ODs suit businesses with uneven cash flows.

Types of overdraft facilities in India

• OD against a fixed deposit: priced a small margin above your deposit rate, and usually the quickest and cheapest route.
• OD against property (LAP-OD): larger limits secured by residential or commercial property, priced against the lender's LAP policy.
• Business OD (unsecured or turnover-based): sized on banking turnover and GST filings, and priced higher because there is no security.
• Salary OD: small personal limits against salary credits — not a business facility.

Overdraft interest rates and charges

Indicative business overdraft pricing on our panel runs 10.00% – 16.00% p.a. as on 10 July 2026, plus a one-time processing fee and an annual renewal or review charge. Secured overdrafts are materially cheaper than unsecured ones. The rate you are offered is the lender's decision and depends on security, turnover, industry, limit size and credit history — current ranges across products are on our rates page.

Is an overdraft facility good for your business?

It suits short, unpredictable cash gaps. For steady, predictable funding needs a term loan is usually cheaper, and for inventory-heavy trading a cash credit limit may fit better — the cash credit versus overdraft comparison sets the two against each other. For eligibility, documents and how lenders assess a limit, see our business overdraft page; to size the overall requirement first, start with the working capital loan page, or compare every facility in the business loan and MSME funding guide.

Moneymax Fingrow is a credit advisory and channel partner, not a lender. We assist businesses in applying with banks and NBFCs; approval, the sanctioned limit and the final rate are decided by the lender.