Overdraft Calculator: Limit, Daily Interest and OD vs Loan

Overdraft interest is calculated on a daily reducing balance, applied only to the amount you have drawn. The bank takes your annual percentage rate, divides it by 365 to get a daily rate, and applies it to your outstanding drawn balance each day.

The daily amounts accumulate and are typically debited monthly. For example, drawing Rs 2 lakh at 12 percent per annum for ten days costs Rs 2,00,000 multiplied by 12 percent, multiplied by ten divided by 365, which is about Rs 657. Crucially, you pay interest only on what you draw and only for the days you hold it, not on the full sanctioned limit.

You pay interest only on the amount you actually draw, never on the full sanctioned limit. This is the defining feature of an overdraft.

If your limit is Rs 5 lakh but you draw only Rs 1 lakh, interest applies to Rs 1 lakh alone. If you draw nothing, you pay no interest at all, though some banks levy a small annual renewal or maintenance fee. This is fundamentally different from a personal loan, where the full amount is disbursed and interest runs on the entire principal from day one regardless of whether you needed it all immediately.

It depends entirely on your usage. For short, partial, quickly repaid borrowing, an overdraft is usually much cheaper because you pay interest only on what you draw for the days you hold it.

For example, Rs 1 lakh for 15 days costs far less on an overdraft than a personal loan. However, for a large amount drawn fully and held for a long, continuous period, a personal loan at a lower rate often costs less overall, because you are paying interest on the whole sum anyway and the overdraft’s higher rate works against you. Always compare against your actual expected drawdown and duration, not the headline rates.

The main types are distinguished by what backs them. A salary overdraft is unsecured, offered to salary account holders at typically two to three times monthly salary at 12 to 18 percent per annum.

An overdraft against a fixed deposit is secured, offering 85 to 90 percent of the FD value at the FD rate plus 1 to 2 percent. An overdraft against property offers high limits at 10 to 14 percent.

An overdraft against securities offers 50 to 85 percent of holding value. Business owners also use current account overdrafts and cash credit facilities based on turnover. Secured overdrafts are considerably cheaper than unsecured ones.

Since January 2025, the Reserve Bank of India requires unsecured overdrafts to be repaid or renewed within 90 days. This rule was introduced to prevent borrowers from drifting into a long-term debt cycle on a facility that is intended for short-term bridging.

If you hold an unsecured overdraft beyond 90 days without renewal, you may face penal charges or account classification issues. Secured overdrafts against a fixed deposit or property are not subject to this 90-day limit and are typically renewed annually. If your borrowing need genuinely extends beyond 90 days, a term loan may suit you better than an overdraft.

Salary overdraft limits are typically set at two to three times your net monthly salary. If you earn Rs 60,000 per month, you might get an overdraft limit of Rs 1,20,000 to Rs 1,80,000.

The exact multiple depends on your bank, your relationship with them, your credit score, and how long your salary has been credited to that account. Salary overdrafts are unsecured, so they carry higher interest, typically 12 to 18 percent per annum, and are subject to the RBI 90-day repayment-or-renewal rule. Some banks offer pre-approved salary overdrafts that can be activated instantly through net banking.

An overdraft against a fixed deposit typically offers 85 to 90 percent of the FD value as your limit. On a Rs 5 lakh FD, that is a limit of around Rs 4,25,000 to Rs 4,50,000.

The big advantage is the rate: an FD overdraft charges the FD interest rate plus a small margin of 1 to 2 percent, making it one of the cheapest borrowing options available. Your FD continues to earn interest untouched while you borrow against it, so you avoid the premature-withdrawal penalty and the loss of your booked FD rate. This makes an FD overdraft ideal for those who have an idle deposit and a short-term cash need.

Yes, an overdraft appears on your credit report and affects your score, much like a credit card. The key factor is your utilisation, the share of your sanctioned limit that you have drawn.

Keeping utilisation below 30 percent signals disciplined credit behaviour, while consistently drawing close to your full limit raises your risk profile and can lower your score. Repaying on time and not overdrawing beyond the sanctioned limit are essential. Because overdraft interest accrues daily, keeping the drawn balance low and repaying quickly benefits both your interest cost and your credit standing.

Yes, and this flexibility is a major advantage of an overdraft. Unlike a personal loan with fixed EMIs, you can repay an overdraft in any amount, at any time, as your cash flow allows.

Every rupee you deposit reduces your outstanding drawn balance and therefore the daily interest you accrue. There is usually no prepayment penalty.

You can draw, repay part, draw again, and repay fully, all within your sanctioned limit and billing cycle. This makes the overdraft ideal for managing irregular cash flows, where you can pay down the balance whenever receivables arrive and draw again when needed.

Drawing beyond your sanctioned overdraft limit, known as an unauthorised overdraft, can trigger several consequences. The bank may reject the transaction outright, or it may honour it but levy penal charges, often at a significantly higher rate than your normal overdraft rate.

Repeatedly exceeding your limit can also flag you as a higher-risk borrower, affecting your credit score and future limit reviews. To avoid this, keep your peak drawdown comfortably within the sanctioned limit. The calculator above flags when your peak drawdown exceeds the estimated limit so you can plan accordingly.

Both are revolving credit facilities where interest applies only to the drawn amount, but they serve different purposes. An overdraft is linked to your current or savings account and is used for general short-term cash needs, backed by salary, an FD, property, or securities.

A cash credit facility is a business-specific working-capital product, typically secured against inventory and receivables, with the limit reviewed against the business’s turnover and stock levels. Cash credit is usually for ongoing business operations, while an overdraft is more flexible and available to individuals as well as businesses. Both charge interest on utilisation, not the full limit.

Yes, most overdrafts carry a one-time processing fee at setup and an annual renewal fee, though these are usually modest. The processing fee is typically a small percentage of the sanctioned limit or a flat amount, plus applicable GST.

Secured overdrafts against an FD or property may have lower fees than unsecured ones. Some banks waive the renewal fee for good customers or small limits.

These fees are separate from the interest and should be factored into your total cost, especially for a small or short borrowing where a flat fee can be significant relative to the interest saved. Always check the fee schedule in your sanction letter.

An unsecured salary overdraft generally requires a reasonable credit score, often 700 or above, because the bank has no collateral to fall back on. If your score is lower, a secured overdraft against a fixed deposit is an excellent alternative, since the FD itself secures the borrowing and approval depends far less on your credit score.

Similarly, an overdraft against property or securities is accessible with a weaker score because the collateral reduces the bank’s risk. If you have any pledgeable asset, a secured overdraft is both easier to obtain and cheaper than an unsecured one, making it the practical choice for those with a low score.

An overdraft interest calculator lets you estimate your borrowing cost before you draw, so you can plan and compare. This calculator goes further than a simple interest tool by estimating your sanctioned limit from your source, letting you model multiple drawdowns with their own days, and comparing the total against an equivalent personal loan.

This helps you see the true daily cost of an overdraft, decide whether an overdraft or a loan is cheaper for your specific need, and avoid overdrawing beyond your limit. Running the numbers first is the most reliable way to choose the cheaper product and minimise your interest cost.

For a short-term need, an overdraft against your fixed deposit is almost always better than breaking the FD. Breaking an FD triggers a premature-withdrawal penalty and means you lose the higher interest rate the FD was earning, often permanently for that deposit.

An overdraft against the FD lets you borrow 85 to 90 percent of its value at just the FD rate plus 1 to 2 percent, while the FD continues to earn its full interest untouched. For a brief borrowing, the small margin you pay on the overdraft is far less than the penalty and lost interest from breaking the FD. Only break the FD if the need is large, long-term, and the overdraft interest would exceed the FD earnings.

Each drawdown accrues interest independently, based on its own amount and the number of days you hold it. If you draw Rs 1 lakh for ten days and later draw Rs 50,000 for five days, the calculator charges the daily rate on Rs 1 lakh for ten days plus the daily rate on Rs 50,000 for five days, then sums the two.

This mirrors how an overdraft actually works: you are not charged a flat rate on a fixed balance for the whole month, but precisely on what was outstanding each day. Modelling your real pattern of multiple partial drawdowns, rather than assuming you held the full amount the entire time, gives a far more accurate cost and usually shows the overdraft is cheaper than a naive estimate suggests.