Among various credit lines, two are term loans and an overdraft facility. To know which is better or more favourable, borrowers need to know the grounds for both.

Understand Term Loans

As the name is self-explanatory, a term loan is provided for a predefined period, generally 12-60 months, in the case of a personal loan. It can be a short-term loan, medium-term loan or long-term loan. Personal loan instant approval facility is the primary driver for the rising demand for personal loans.

• Here the borrower receives a lump sum amount sanctioned by the lending institutions.
• The lender charges interest at a fixed interest rate depending on the personal loan eligibility during the loan tenure.
• The loan amount is distributed among small EMIs (Equated Monthly Instalments) for easy repayment. The EMI calculation varies with the term or tenure of the loan.

Understand Overdraft

It is a type of loan provided in access to an amount in a savings or current account. It can be defined as a pre-approved credit facility provided to the borrower for a certain period. During this period, the borrower can withdraw the effective credit balance within the sanctioned limit.

• Unlike term loans, it involves subsequent disbursements on request. It allows borrowers to withdraw funds as and when required during the specified period.
• The interest is calculated on the amount utilised only and not on the entire approved limit.

Thus, a term loan is suitable for individuals looking for a small buy or meeting business needs using a lump sum amount. In contrast, individuals who want to manage their day-to-day lifestyle needs with flexible withdrawal and repayment options can go with an overdraft facility. Depending on the personal loan eligibility, the loan amount can go as high as Rs.25 lakhs.

Also Read: 10 Rules to Get the Finest Deal for Personal Loan