People in Malaysia are o ten confused about the type of product that can be used for payments or debt riddance. An overdraft might be the answer if he or she owns a current account. There is a lot more to overdrafts but most people are unaware of the existence of this product. Take a look at what are the basic ideas of an overdraft and especially an overdraft that can be taken against your existing personal loan.
What is an Overdraft?
Overdraft is a product is basically a financial tool that works in the line of credit cards, providing money for a temporary basis against the collateral of a financial asset. Generally, an individual is allowed to withdraw as much money as he wants as long as the amount is available in his account. But with Overdraft or OD facilities, he or she can basically draw more money than is available in his or her current account up to a certain credit limit, which is similar to a credit card. Overdrafts can be secured through major collaterals that consist of financial products that you already have which includes fixed deposits, personal loans and housing loans. This allows the individual to be able to use credit money and pay it back at far more competitive rates.
How Does an Overdraft Against Personal Loan Work?
When you are using overdraft to gain access to more money, you have to provide a collateral which will be seized in the case that you are unable to make any payments for the overdraft. But the interest rate that is calculated is slightly different from the usual we calculate it.
The interest rate on Overdrafts generally used the BLR rate and is also calculated on the daily balance of overdraft which is the amount of money that has been utilized. This is how it is calculated.
Interest charged is equal to the amount Overdrawn Amount multiplied by the interest rate, further multiplied by the number of days or by 365 days.
For more clarity here is an example:
Total Overdrawn Value = RM 200,000
No. of Days Overdrawn = 30 days in your billing period of September 2016.
Interest Rate = BLR + 1% per annum
Thus, interest charged for January 2016 is calculated as:
RM 200,000 x (6.6% + 1%) x 30 / 365 = RM124.93
Main Benefits of Overdraft against a Personal Loan
The main benefit of an overdraft against a personal loan is Malaysia includes:
- A lot of renowned banks in Malaysia offer this service, allowing you to enjoy the option, worry-free.
- The user has a lot of flexibility when it comes to overdraft as a personal financing product.
- The rate of interest does not change over time but runs on a flat rate as mentioned earlier.
- The individual is charged interest for only the amount that has been utilized.
Hence, this is a fabulous source of finance when you need it along with a considerably lower interest. This is a very good alternative for credit cards as well.