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Drop-line Overdraft

Drop-line Overdraft

“Don’t want to carry the burden of monthly EMI obligations? Go for DOD”

Drop-line Overdraft is a financial instrument that allows a borrower to overdraw cash from his/her current account up to an agreed limit, wherein the withdrawal limit reduces each month from the sanctioned limit. The interest rate is paid only on the withdrawn cash and not on the total borrowing limit. Money can be deposited anytime to reduce the outstanding balance. Interest rate is calculated on a daily basis and is charged at the end of each month.

For Instance- If the initial tenure of the overdraft facility is 60 months and the original overdraft limit granted is Rs. 10 lakh, then after 1 month the operating limit shall automatically be reduced by 10,00,000/60 = Rs. 16,666. This means that the operating limit available at the end of the first month shall be (10, 00,000 – 16,666) = Rs. 9, 83,334. This calculation shall proceed for the second month as well and each month further, up till the last month of repayment tenure.

FEATURES OF DROP-LINE OVERDRAFT:

  • Withdrawal limit reduces each month from initially sanctioned limit
  • Comes as both secured and unsecured loan
  • Do not require collateral to be submitted, in case of unsecured Drop-line Overdraft facility
  • Interest rate is charged on a monthly basis but calculated on daily basis
  • Borrowing limit can go up to Rs. 50 crore, however it depends on bank’s sole discretion
  • Borrowed amount is credited to only current accounts
  • Can be used on a monthly, quarterly, half yearly or yearly basis
  • Usually the Drop-line limit is assigned for 1 – 15 years, it may vary from bank to bank
  • One-time processing fee is charged
  • Do not levy yearly renewal charge
  • It is a mix of term loan and overdraft facility
  • Opted mostly by manufacturers, retailers and traders


ELIGIBILITY:

  • Business Vintage- Minimum of 2 years in current profession
  • Turnover- Minimum 30 lakhs 
  • Age- 
  1. Minimum 24 years at the time of loan application
  2. Maximum 70 years at the end of loan tenure
  • Residence/Office Stability- Either office or residential property should be owned, In case of rented accommodation, residence stability should be of at least 12 months, not applicable if shifted to owned house, Office stability should be of at least 24 months
  • Minimum Income- 
  1. In case of individuals, minimum income to be of 2.5 lakhs as per ITR for last 2 years
  2. In case of non-individuals, minimum cash profit should be Rs 3 lakhs for last 2 years