What is overdraft? Can I withdraw cash from an overdraft account?

Overdraft loans are a long-standing lending service at banks. However, compared to mortgage loans, unsecured loans or cash withdrawals via credit cards, overdraft loans are less known. Let’s find out with DNSE what Overdraft is in the article below to see what advantages this form of loan has and whether it suits your loan needs or not.

What is overdraft?

Learn about overdrafts

Overdraft in English is Overdraft . This is a form of loan from a credit institution. Accordingly, the debit card holder is allowed by the commercial bank to spend more than the available balance in his/her payment account. This excess amount is called the overdraft limit. The bank will charge interest on the excess amount you spend.

For example: The bank grants the account holder an overdraft limit of 20 million. The actual balance in the account is 20 million. That means you are allowed to spend a maximum of 40 million. If you spend 25 million, the amount you spend over is 5 million. The bank will charge interest on this 5 million until you repay the above amount.

Can an overdraft account be withdrawn in cash?

Normally, an overdraft card will be integrated into a certain ATM card. That’s why we can completely withdraw money via bank overdraft cards. Withdrawal operations via overdraft cards are carried out in the same way as regular ATM cards and can be done at ATM systems of the same bank or affiliated banks.

The withdrawal limit is according to general regulations, but it only applies to the amount of money on the credit card. According to regulations, they will not be able to withdraw money from bank overdraft accounts because banks only accept banks to spend more than the amount on the customer’s payment account to perform payment services on the account. pay.

If you want to withdraw money within the overdraft limit, you will need to go through loan procedures under the overdraft account. After the overdraft loan amount is transferred to your bank account, your payment account will be able to withdraw money as quickly as possible.

Nature of overdraft

The essence of overdraft is the bank’s credit grant to the customer when the payment account reaches 0

Overdraft allows the account holder to withdraw money even when the account has no money in it or there is not enough money in the account to cover the withdrawal amount,

Understandably, overdraft occurs when more money is withdrawn from a bank account than the available account.

This will create a negative balance on the account and means that the bank has granted us a credit.

Conditions for an overdraft: Customers must be reputable, regularly transact through the bank, have a stable financial situation, have regular income and a short income cycle.

What are the characteristics of an overdraft loan?

Overdraft is a popular form of lending by credit institutions today

Overdraft limit : depends on the borrower’s income, collateral and credit history.

Subjects of overdraft loans : usually account holders with unexpected spending needs.

Overdraft loan conditions : diverse, depending on each bank. Normally, if the cardholder has a stable income that is paid monthly via a bank card, he or she is eligible for an overdraft loan.

Overdraft loan interest rate : usually high, can be 1.5 times the normal interest rate. However, the advantage of an overdraft loan is that the cardholder only has to pay interest on the actual overspending amount, calculated on the specific loan date, not on the entire loan amount like unsecured loans or loans. Mortgage. Loan interest is calculated based on decreasing outstanding balance as follows:

Total monthly overdraft interest = ∑ (actual overdraft balance * overdraft interest rate/360 * actual number of overdraft days)

For example: You borrow 10 million VND overdraft with an interest rate of 25%/year and from the date of using the amount of 10 million to the date of repayment is 30 days. The amount of overdraft interest you have to pay is: 10 million x 25%/360 x 30 = 208,333 VND.

Note: Some banks stipulate that if the customer uses an overdraft and returns the used amount within a specified period of time on the same payment date, interest will not be charged.

What types of overdraft loans are there?

Two popular forms of overdraft loans today are unsecured overdraft loans (mainly based on the borrower’s salary account) and mortgage overdraft loans (based on the value of the collateral).

For unsecured overdraft loans, the borrower is not required to have collateral. The bank will rely on the cardholder’s credit history to approve a certain overdraft limit. But because the risk of debt recovery is higher than a mortgage overdraft, the loan limit is not high, fluctuating between 3-5 times the borrower’s monthly salary.

For mortgage loans: The bank requires the loan to be secured with personal assets (usually a savings account). The loan level is high, depending on the value of the collateral and up to billions of dong.

What are the conditions and procedures for overdraft loans?

Overdraft loan conditions

Each bank has different loan conditions. Normally, to be approved, you must ensure you have a stable source of income, paid via bank card monthly. In addition, the account holder must also meet a number of other conditions such as:

Be 20 years old or older at the time of loan application
Have household registration or temporary residence in the locality where the bank’s business unit operates
Minimum income according to regulations of each bank
Labor contracts with a fixed term or indefinite term or with State payroll.

What are the conditions and procedures for an overdraft loan?

Overdraft loan procedures

Once the above conditions have been met, the cardholder needs to prepare the following documents:

Application for overdraft limit
Request to open an account in case you do not have an account at a bank
ID card/CCCD/Passport is still valid at the time of request
Household registration/KT3 (long-term temporary residence permit)
Documents proving income such as salary decisions, labor contracts, etc.
Other documents as prescribed

How to use an overdraft account

To use an overdraft account, you need to do the following:

You need to go to the bank branch where you opened an account to request an overdraft limit
The bank will review your application based on criteria such as: Transaction history, income, ability to pay,…
If the application is accepted, the bank will issue you an overdraft limit and applicable loan interest rate

Use an overdraft limit

Overdraft limit can be used to pay by ATM card, debit card, online payment or ATM cash withdrawal
When using an overdraft limit, the bank will automatically calculate interest on the overspent amount
Overdraft interest rates are often higher than other bank loan interest rates.

Pay off an overdraft loan

You need to pay off the overdraft loan and interest in full before the bank will consider granting you the overdraft limit again the next time.
You can pay off your overdraft loan by depositing cash into your account, transferring money from another account or deducting your salary through the bank.

Be careful when using an overdraft account

Overdraft limits should only be used for necessary purposes and for short periods of time.
Overdrafts and interest should be paid in full to avoid penalties and damage to your creditworthiness
Regularly monitor your account balance and overdraft limit to avoid fines due to spending over the limit.

Can an overdraft loan be transferred?

Can an overdraft loan be transferred? We cannot pay from an overdraft account, we can only make purchases and payments. If you are using an overdraft account at a bank, you should pay attention to this issue!

In case of exceeding the overdraft limit

In case the overdraft balance (including principal balance, related fees and costs) exceeds the overdraft limit, the borrower is obliged to pay the excess within the prescribed time. Furthermore, the borrower is also charged interest at a higher interest rate than the original loan amount.

According to VPBank’s regulations, if the borrower’s actual outstanding balance exceeds the overdraft limit due to the borrower’s violation of payment obligations, the lending interest rate applied to the principal debt must not exceed The term is adjusted to 150% of the applicable interest rate from the time the borrower exceeds the overdraft limit to the actual time that person pays off the entire amount over the limit.

Should I borrow overdraft?

Whether or not you should borrow overdraft is a question that many people are interested in

Overdraft loans mostly meet urgent loan needs in a short period of time. Because interest rates are often high, you need to consider carefully when requesting an overdraft loan. Unless you cannot manage capital from other sources, you should think about this type of loan.

Hopefully the above information has helped you answer the question What is an overdraft ? Along with that, DNSE hopes you will have more knowledge about a new form of loan to choose based on your financial needs. This form should only be used in truly urgent cases and when you cannot raise money from other sources. Although not as well known as unsecured loans or mortgage loans, overdraft loans are still trusted by many organizations and individuals who need to borrow capital for a short period of time.