Overdraft vs Personal Loan: Which Saves You More?

Banks offer two ways to borrow short-term money — overdraft and personal loan. Choosing wrong can cost you thousands in extra interest. Here's how to pick the right one for your situation.

Here's what happened: Overdraft (OD) is a revolving credit line — you pay interest only on the amount you actually use, not the full limit sanctioned.. Personal loans give a fixed lump sum upfront with a set repayment schedule — EMIs start immediately whether you use the money or not.. OD interest rates typically range from 12–18% p.a. for salaried borrowers, while personal loan rates run 10.5–24% depending on your CIBIL score and lender..

What you should do: Choose overdraft if your cash need is irregular or short-term (under 90 days) — you save interest by repaying quickly in pieces.. Choose a personal loan if you need a large fixed amount for a defined goal like medical bills, wedding, or home renovation with predictable repayment.. Check your CIBIL score before applying — a score above 750 gets you the best personal loan rates; OD limits are also higher for strong credit profiles..

Pro tip: Many banks offer salary account overdrafts up to 2–3x your monthly salary at lower rates than standard personal loans — ask your bank before borrowing elsewhere.