Do Banks Check the CIBIL Report When You Apply for an Overdraft Loan?
Last Updated : April 6, 2020, 11:41 a.m.
Overdraft is a financial product that helps you withdraw money from your savings or current account even if the balance is zero. An overdraft can be sanctioned based on salary accounts or even fixed deposits. The drawing power is, however, limited by the limit you are sanctioned with. The money you withdraw attracts interest charges. It’s different from term loans that are repaid via Equated Monthly Installments (EMIs) over the chosen tenure. What’s similar between term loans and overdrafts, though, is that banks pull out the credit report of applicants in both the cases. Overdrafts granted against fixed deposits won’t require any credit enquiry as they are secured in nature. Other than that, the credit score criteria will stay. So how much credit score do you require to get an overdraft facility ? This post will tell you that!
What is the Minimum Credit Score Required to Obtain Overdrafts?
Most lenders would approve overdraft applications if you have a credit score of 700 and above. Credit bureaus such as CIBIL that generates your credit score based on your credit behaviour.
Why Do Banks Check the Credit Report While Sanctioning Overdraft?
The credit score is one thing and a credit report is another. So merely a credit score may not be enough, banks will scrutinize your credit report too! The report shows your entire repayment history like how many credit accounts you have, how much you owe in each of them, the payment schedule you may have maintained, instances of late payment or default, if any. If you have defaulted on your credits earlier but regained lost grounds later by paying all your dues, you might have a good credit score. But the spot of default might make lenders go tight in offering unsecured overdrafts. It may not result in the cancellation of the application. But the lender could sanction less limits or you get the desired amount at higher interest rates.
How Can You Check Your CIBIL Report?
You can do so by creating an account on the official website of CIBIL by mentioning a few personal and professional details. But this service is free for only one check a year. The moment you check more than once, applicable charges will be deducted. This is where Wishfin, a renowned fintech portal, comes to your help. You can check your credit score & credit report, provided by CIBIL, as many times as you want for free at Wishfin, which is the official partner of TransUnion CIBIL for providing credit scores in India. The steps are shown below, take a look.
- Visit the official website of CIBIL
- Enter Your Name as per PAN Card
- Mention your Date of Birth in YYYY-DD-MM format
- Tick on your Gender
- Enter your PAN number
- Provide your Net Monthly Income
- Tick on your employment status
- Enter your email address and contact number
- Read the terms & conditions before you click on the checkbox confirming your acceptance to the same
- Click on ‘Submit’ in the end to complete the process.
- CIBIL will verify the details and you’ll be asked to authenticate your credit details.
After the successful verification, you will get to see your credit score & credit report. The above process is for those who are new to doing soft credit enquiry at Wishfin. The next time you just need to click on “login to see your detailed CIBIL Report . You’ll get to see the score as well as the report.
How Can an Overdraft Add Value to Your Credit History?
Both secured and unsecured overdraft facilities can help maintain a good credit score provided you pay dues on time. A long track of timely payment will lift your credit history too. Once you use the overdraft limits, the interest will accrue on the basis of daily outstanding balance. So when credit bureaus like CIBIL get to see the repayment report sent from your bank, they get an idea of how you utilize your limits and how you service the interest accrued on the same. The discretionary use of limits and timely payment of dues will make bureaus believe that you are a responsible borrower. This will eventually add positivity to your credit history.
How Do Lenders Decide About the Tenure of the Overdraft Facility?
Overdrafts are generally granted for a year, after that, banks carry out the review and see the repayment track. If banks find it good, the facility can get extended. Otherwise, banks could ask the borrower to return all the money. What’s worse is that the spot of late payment on a regular basis could decrease your credit score fast. Secured overdrafts granted against fixed deposits will most likely continue till the time the deposit product matures. If you still have limits left to utilize at the time of maturity, you can request the bank to renew the fixed deposit for the period you want to continue the overdraft.
Lenders That Offer Overdraft Facility in India
| Lenders | Financial Instrument Based on Which Overdraft is Granted | Interest Rate (In Per Annum) | Quantum of Credit Limit | Processing Fee |
|---|---|---|---|---|
| State Bank of India (SBI) | Fixed Deposit | 1% above the relative time deposit rate | Minimum - INR 25,000 Maximum - INR 5 Cr | NIL |
| HDFC Bank | Salary Account | 15%-18% | Minimum - 25,000 Maximum - INR 1.25 Lakh | INR 999 |
| ICICI Bank | Offered to business entities | 16% | Maximum - Upto INR 10 Lakh for New Customers Upto INR15 Lakh for Existing Customers | 2% of the overdraft amount |
| Axis Bank | Based on your savings or current account relationship with the lender | As Applicable | Minimum - INR 3 Lakh Maximum - INR 50 Lakh | Upto 1% of the overdraft amount |
| Bank of Baroda | Fixed Deposit | As applicable | Upto 90% of the deposit amount | As applicable |
The interest accrued on overdrafts against salary accounts will be debited automatically from the salary account on the last day of the month. In case of insufficient balance, the interest will be recovered by way of salary credit or any other deposit within 30 days of the scheduled auto debit date.