If you need funds for purposes such as expanding your business, or covering unexpected business expenses, getting a loan on your current account can be a viable option. Many financial institutions in India offer loans against your current account, allowing you to access funds without disrupting your day-to-day business operations.
Types of loans available on current accounts
When it comes to availing a loan against your current account, there are two common types of loans that you can consider:
- Overdraft facility: An overdraft facility is a credit funding offered by financial institutions that allows you to withdraw funds from your current account even if the account balance is insufficient. You can withdraw an amount up to a specified limit, determining your creditworthiness and the balance maintained in your current account. The interest is charged only on the amount withdrawn, and you can repay the loan at your convenience. Overdraft facilities are suitable for short-term financial needs and offer flexibility in terms of repayment.
- Cash credit facility: A cash credit facility is also a type of loan offered by banks that allows you to borrow funds against the collateral of your current account balance. The bank sets a limit based on your creditworthiness, and you can borrow funds up to that limit as and when required. Interest is charged on the borrowed amount, and you can repay the loan in EMI or in full at your convenience. Cash credit facilities are suitable for long-term and short-term financial needs and offer flexibility in terms of repayment.
Step-by-step guide on how to get a loan on your current account
Research and choose the right bank: Research various banks and financial institutions that offer loans against current accounts in India. Choose a bank that offers favourable terms that suit your financial needs. To make an informed decision, look for factors such as interest rates, loan processing fees, repayment options, and customer reviews.
Gather required documents: Once you have selected a bank, gather all the necessary documents to apply for a loan against your current account. Common documents may include identity proof, address proof, bank statements, income proof, and business proof, depending on the bank’s requirements. Ensure you have all the documents to avoid delays in the loan application process.
Submit a loan application: Visit the bank branch or contact the bank’s customer service to initiate the loan application process. Fill out the loan application form with the right information and submit it with the required documents. Double-check the application form and documents to ensure no errors or discrepancies.
Wait for loan approval: Once you have submitted the loan application, the bank will review your application and assess your creditworthiness. This may involve a credit check, verification of documents, and evaluation of your current account balance. Depending on the bank’s processing time, the bank will communicate the loan approval status to you within a few days or weeks.
To wrap up
Availing a loan against your current account can be a convenient and flexible way to meet your immediate financial needs. With proper financial planning and responsible borrowing, you can effectively utilise the loan on your current account to fulfil your financial requirements. Always repay the loan on time to maintain a good credit score and financial health.