Overdraft Facility

Have you ever swiped your debit card, knowing your account is nearly empty, yet the payment still goes through? You might have just used your overdraft facility — without even realizing it.

Overdrafts are one of those financial tools many people hear about, few understand, and even fewer use wisely. For some, it’s a temporary lifeline. For others, it becomes a slow spiral into unwanted debt.

In this article, we’ll explore what overdraft actually means, how it works in real life, why people use it, what risks come with it, and what you should do if you’re stuck — especially if your bank is calling and you’re not sure how to deal with it. And yes, we’ll also tell you how Legals365 can step in to support you legally and professionally if your overdraft has turned into a nightmare.

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What Is an Overdraft Facility, Really?

An overdraft isn’t a loan in the traditional sense. It’s more like your bank giving you a green signal to dip into extra funds — money that technically isn’t yours — up to a limit that they decide, based on how much they trust you.

This can be very helpful. Let’s say you’ve got ?1,000 left in your account, but you need to urgently pay a bill of ?5,000. If your account has an overdraft limit of ?10,000, your payment will still go through. You’ll just owe the bank ?4,000 plus some interest until you pay it back.

The interest isn’t charged on the entire limit — only on the money you use, and only for the days you use it.

It’s flexible. It’s fast. But it can also be expensive if you don’t handle it properly.

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Who Usually Takes an Overdraft?

Overdraft facilities are used by both individuals and businesses. Here’s where you commonly see it:

• A small shop owner waiting on delayed payments from customers, but still needing to pay rent and salaries.

• A freelancer or self-employed person whose income comes in bursts, but who has monthly bills that can’t wait.

• A salary account holder who’s allowed to go negative for a short time and pay it back once the salary comes in.

• A business using overdraft as a credit cushion when cash flow gets tight.

Banks typically offer overdrafts in two ways — secured (against fixed deposits, insurance policies, etc.) and unsecured (based on income, credit score, or banking relationship).

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How Much Can You Overdraw?

That depends on your relationship with the bank. If you’re putting up collateral, like an FD, you might get 90% of that amount as overdraft. If it’s unsecured, limits are smaller — say ?25,000 to ?3 lakh, depending on your income or turnover.

The bank checks things like your past transactions, salary consistency, credit history, and repayment record before giving you an OD limit.

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What’s the Catch?

Here’s the part most people miss — overdrafts come with interest, and it’s not always small. You only pay interest on what you use, yes — but the rates can be high, especially on unsecured overdrafts. Some banks charge 12% to 18%, and in some cases, even more.

Worse, many people use overdrafts for months without realizing they’re paying daily interest. And if you keep using it like a regular loan without a plan to repay, it quickly becomes unmanageable.

In some cases, the bank may convert your overdraft into a regular loan if you fail to pay — which comes with more interest, processing charges, and a structured repayment schedule.

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The Risk of Misuse

Many people fall into a trap because overdrafts feel easy — swipe now, think later. But they’re legally binding debts. If you default:

• The bank will send you notices and reminders.

• They can freeze your account or stop services.

• For secured overdrafts, they can begin the process of recovering their security (like liquidating your FD or attaching property).

• Your CIBIL score will take a hit.

• You may face recovery agents or legal notices if the amount becomes significant.

This is especially common with businesses who are already under pressure and can’t clear their overdrafts when the bank asks for it.

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Can You Settle an Overdraft?

Yes, you can. Banks often allow One-Time Settlements (OTS) for overdrafts, just like they do for loans. But you need to negotiate well, and it helps to have someone who understands the legal and financial language involved.

That’s where Legals365 comes in.

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How Legals365 Helps You With Overdraft Problems

At Legals365, we’ve worked with hundreds of clients — individuals, families, and small businesses — who found themselves deep in overdraft trouble. Here’s how we help:

• We study your account and assess whether the bank’s terms are fair and legal.

• We speak to the bank directly on your behalf and negotiate better terms or settlements.

• We help you file complaints if you’re being harassed by recovery agents or if the bank violates RBI rules.

• We can assist with converting your overdraft into a structured, manageable loan — legally.

• If legal action has been initiated, we represent you and protect your interests in court or through alternate legal channels.

You don’t have to go through the stress alone. With Legals365, you're not just hiring a lawyer — you're getting a legal partner who understands the financial system inside out.

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Overdraft vs Personal Loan vs Credit Card

Still confused about what’s better? Here’s a quick comparison:

Overdrafts are best for temporary liquidity, not for long-term borrowing.

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Final Thoughts

The overdraft facility is like a pressure valve - it helps release financial stress when things are tight. But if not used responsibly, it can easily turn into a debt trap.

If you’re already facing issues - if the bank is threatening legal action, your balance is always in the negative, or you simply don’t see a way out — don’t wait for things to get worse.

Get professional help.

At Legals365, we make sure your side of the story is heard, your rights are protected, and your options are laid out clearly — so you can take control again.

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Need help with your overdraft issue?
Visit www.legals365.com or reach out for a free initial consultation.
You’re not alone — and you don’t need to fight alone.

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Legals365 offers comprehensive, expert support for all yourOverdraft Facility needs. Our experienced team of legal professionals provides tailored guidance to help you navigate the complexities of Overdraft Facility cases with confidence. Whether you need assistance with documentation, court representation, or strategic planning, Legals365's Overdraft Facility services are designed to protect your interests and achieve the best outcomes. We handle every Overdraft Facility case with professionalism and dedication, ensuring that you receive personalized, client-focused support. Trust Legals365 for all your Overdraft Facility needs, as we work tirelessly to deliver results that make a difference.

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