Decoded: The difference between an Overdraft Loan and a Personal Loan.

Many times people get confused between choosing a personal loan or an overdraft loan. This article highlights the similarities and differences and helps you choose the right loan for your requirement. Let’s take a tour.

What is a Personal Loan?

A personal loan is a fixed amount of money obtained from a financial institution like a bank or an NBFC, repaid in regular monthly instalments at a predefined interest rate. A personal loan is an unsecured loan issued based on the creditworthiness of an applicant. The financial institutions do not impose any restrictions on the usage of the funds.

What is an Overdraft Loan?

The overdraft loan allows the applicant to withdraw an amount over and above their account balance from their bank account. The credit profile of the individual or the company determines the amount. An overdraft loan often requires collateral like fixed deposits, property and other assets.

How to Avail?

Financial institutions like banks and NBFCs allow individuals to apply for personal loans based upon their respective personal loan eligibility criteria. LoansJagat helps individuals to avail themselves of an instant personal loan with a simple online process. Individuals can compare and choose the loan options from top lenders. An instant personal loan by LoansJagat is possible within a few days or as quickly as 24 hours.

An overdraft loan is a facility provided by the banks where an individual or a company maintains their banking account. Availability of an overdraft loan depends entirely upon the relationship with the bank. A few banks allow the automatic facility of overdraft loans based upon the performance of the bank account. Collaterals like fixed deposits help to increase the overdraft loan limit. Once sanctioned, individuals are free to utilise the overdraft limit without any processes.

Interest Rate

A personal loan has a predetermined interest rate agreed upon at the time of loan sanction. Repayment happens in equated monthly instalments along with the principal amount.  

An overdraft loan has a higher interest rate than a personal loan. As a result, individuals repay the utilised overdraft loan at the earliest to avoid the interest burden.

Loan Tenure

A personal loan is a long tenure loan, usually availed for 5 to 7 years. The overdraft loan, on the other hand, is a short tenure loan. The interest on an overdraft loan is applied only on the days and amounts used. 


Repayment of a personal loan happens in equal monthly instalments throughout the tenure of the loan. An overdraft loan does not have a fixed repayment schedule. The borrower has to repay the amount utilised as early as possible in full or partial to avoid accruing of interest.

Pre-Payment Charges

Most banks and NBFCs charge a prepayment fee on the early repayment of the loan. LoansJagat helps applicants to choose an instant personal loan with the best terms.

An overdraft loan is a product for frequent utilisations and repayments. Hence, there are no pre-payment charges for an overdraft loan.

What to Choose?

Choosing between a personal loan and an overdraft loan depends upon the financial requirement. A personal loan helps to avail the amount with repayment over a long period. An overdraft loan allows availing of the smaller amount with repayment in a few days.   

If it’s a requirement like a medical emergency and you need a few years to repay, opt for a personal loan. However, if the need is for working capital management for a few days, an overdraft loan is a better choice.

How to avail of an instant personal loan?

LoansJagat is India’s leading platform for instant personal loans, allowing individuals to check personal loan eligibility criteria, compare offers from over 40 banks and NBFCs.