When applying for a business or personal loan, borrowers often come across two options—Term Loan and Overdraft Loan (OD Loan). Both provide financial support but serve different purposes.
At Bravima Solution, we specialize in connecting borrowers with NBFC-backed loans, ensuring they get the best financing solutions. In this article, we will compare Term Loans vs. Overdraft Loans in detail.
What is a Term Loan?
A term loan is a fixed lump sum borrowed from a bank or NBFC, which must be repaid within a set tenure along with interest. These loans are ideal for businesses and individuals who need funding for expansion, equipment, or major expenses.
Key Features of Term Loan:
- Loan Amount: ₹1 lakh to ₹50 crore
- Tenure: 1 to 10 years
- Interest Rate: 9% – 18% p.a.
- Repayment: Fixed EMIs (monthly installments)
- Security: Can be secured or unsecured
Best for: Businesses and individuals needing a long-term financial solution with fixed repayments.
What is an Overdraft Loan (OD Loan)?
An overdraft loan is a flexible credit facility where borrowers can withdraw up to a pre-approved limit from their bank account. Interest is charged only on the amount used, not on the total limit.
Key Features of Overdraft Loan:
- Loan Amount: Depends on bank/NBFC approval
- Tenure: No fixed tenure (renewable annually)
- Interest Rate: 10% – 24% p.a. (only on withdrawn amount)
- Repayment: Flexible; borrower can repay any time
- Security: Often secured (FDs, property, or business assets)
Best for: Businesses and individuals who need short-term liquidity for daily expenses.
Term Loan vs. Overdraft Loan: Key Differences
| Criteria | Term Loan | Overdraft Loan (OD Loan) |
|---|---|---|
| Loan Type | Fixed loan amount | Flexible credit limit |
| Collateral Required | Sometimes | Usually required (FDs, property, business assets) |
| Interest Rate | 9% – 18% p.a. | 10% – 24% p.a. (only on withdrawn amount) |
| Loan Amount | ₹1 lakh – ₹50 crore | Depends on bank/NBFC approval |
| Repayment Structure | Fixed EMIs | Pay as per usage |
| Best For | Large expenses, long-term funding | Short-term cash flow management |
Pros and Cons of Term Loan vs. Overdraft Loan
Pros of Term Loan
- Lower Interest Rates – Compared to overdraft loans.
- Fixed Repayments – Structured EMI payments make financial planning easier.
- Higher Loan Amounts – Suitable for expansion, equipment purchase, or investments.
Cons of Term Loan
- Less Flexibility – Borrowers must repay fixed EMIs even if they don’t need the full amount immediately.
- Longer Approval Time – Due to document verification and eligibility checks.
Pros of Overdraft Loan
Flexible Usage – Withdraw funds as needed, reducing unnecessary interest payments.
No Fixed EMIs – Repayment can be made anytime within the limit.
Best for Working Capital – Ideal for businesses with fluctuating cash flow.
Cons of Overdraft Loan
Higher Interest Rates – Compared to term loans.
Requires Collateral – Often backed by fixed deposits or assets.
Which Loan Should You Choose?
Choose a Term Loan if:
- You need a large loan amount for business expansion, equipment, or a big investment.
- You prefer a structured repayment plan with fixed EMIs.
- You want a lower interest rate for long-term financial stability.
Choose an Overdraft Loan if:
- You need a flexible borrowing option for short-term cash flow.
- You want to pay interest only on the amount used.
- You have collateral to back the loan.
Eligibility Criteria for Term Loan and Overdraft Loan
| Criteria | Term Loan | Overdraft Loan (OD Loan) |
|---|---|---|
| Age | 21 – 65 years | 21 – 65 years |
| Minimum Income | ₹2 lakh per annum | ₹3 lakh per annum |
| Credit Score | 700+ preferred | 700+ preferred |
| Employment Type | Salaried or Self-Employed | Salaried or Self-Employed |
| Required Documents | KYC, income proof, bank statements, business proof | KYC, income proof, bank statements, collateral details |
How to Apply for a Term Loan or Overdraft Loan?
Steps for Term Loan:
1. Visit Bravima Solution or a bank/NBFC website.
2. Check eligibility and loan amount.
3. Submit documents like KYC, income proof, and business details.
4. Loan is approved, and amount is disbursed in a lump sum.
Steps for Overdraft Loan:
1. Apply with a bank/NBFC that offers OD facilities.
2. Provide required documents, including collateral if needed.
3. Get pre-approved credit limit.
4. Withdraw funds as needed and pay interest only on usage.
FAQs – Term Loan vs. Overdraft Loan
1. Can I switch from an overdraft loan to a term loan?
Yes, many banks allow borrowers to convert their OD loan into a structured term loan.
2. Which loan is better for a startup business?
A term loan is ideal for business expansion, while an overdraft loan is better for managing daily cash flow.
3. What happens if I don’t repay my overdraft loan?
If you fail to repay an overdraft loan, the bank may seize the collateral (if secured) and report it to credit bureaus.
4. Do NBFCs offer overdraft loans?
Yes, many NBFCs provide overdraft facilities for businesses and individuals.
5. How long does it take to get approval for a term loan?
Term loan approvals can take 2 to 7 days, depending on document verification.
Conclusion
Both term loans and overdraft loans serve different financial needs. If you need a structured, long-term loan, a term loan is the best choice. However, if you need short-term liquidity, an overdraft loan is ideal.
At Bravima Solution, we help you find the best NBFC-backed loans with flexible terms. Apply today and secure the right financing for your needs! 🚀
📞 Contact us now to get started!
